State Bank of India Profit Jumps on Drop in Provisions Against Bad Loans
(Bloomberg) -- State Bank of India said its profit jumped fourfold due to muted provisions, as the country's largest lender expressed confidence it has enough of a bad loan cushion to withstand the effect of the corornavirus pandemic.
Net income climbed to 35.8 billion rupees ($474 million) in the latest quarter from 8.4 billion rupees a year earlier, pushing SBI shares up as much as 9% on Friday, the most since March.
“We have cleaned up the balance sheet so much that nothing remains to be cleaned,” said SBI Chairman Rajnish Kumar.
The bank set aside 135 billion rupees in provisions, down from 165 billion rupees a year earlier. Kumar said he doesn't expect more than another 2% of loans to turn sour, having “accounted for elevated credit cost.”
Kumar's confidence contrasts with the bleak outlook for many Indian banks, which face a spike in bad loans as an extended lockdown on the economy shutters businesses and leaves millions jobless.
Nevertheless, Kumar warned that future bad loan recoveries will be slow, due to the added leeway given to Indian companies for making loan repayments and avoiding bankruptcy proceedings.
SBI's bad loan recovery was 25.3 billion rupees in the latest quarter, down from 135.5 billion rupees in the three months to December 31.
The bank expects loan growth to stay muted around 7-8% in the current fiscal year. However, that would be above credit growth of 5.6% in the year ended March.
Read about Indian banks' risk aversion and government steps
SBI's gross bad-loan ratio stood at 6.15% at the end of March, compared with 6.9% in the previous quarter. Its capital adequacy ratio was 13.06%, higher than a minimum requirement of 10.875%.
©2020 Bloomberg L.P.
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