(Bloomberg) -- Shares of State Bank of India, the nation's largest by assets, surged this week by the most in almost three decades, buoyed by plans to tackle bad debt and a profit that beat expectations.
The Mumbai-based lender jumped 39.4% -- most since March 1992 -- to a record close of 393.10 rupees. Investors cheered the fact that higher provisions for potential bad loans failed to stymie profit growth as well as the government's proposal to set up a bad bank that will help firms like SBI get rid of souring assets.
SBI on Thursday reported net income of 51.96 billion rupees ($712 million) in the quarter ended Dec. 31, compared to an average analysts' estimate of 48.50 billion rupees compiled by Bloomberg.
Earnings of SBI, which accounts for about a fifth of loans in the country's banking sector, is a key indicator of the health of India's economy that's set for a historic contraction this financial year. Lenders, which were already weakened by a two-year-old shadow lending crisis, are now struggling with one of the worst bad-loan ratios among major nations.
The bank set aside 103.4 billion rupees to protect itself against potential problem loans, compared with about 101.2 billion rupees three months earlier and 72.5 billion rupees a year ago. It stepped up its provision coverage ratio to 90.2% as of end December from 81.7% a year ago.
Read about the divergence between reported and actual bad loans
“The economic revival is coming back with a vengeance,” SBI's Chairman Dinesh Khara said in a post-earnings media call, adding that the lender expects credit growth to return to double digits.
Loans at the lender grew by 6.7% in the year to Dec. 31. The bank's gross bad-loan ratio was 4.77% at the end of December, compared with 5.28% three months earlier. But that ratio would have been 5.44% if India's Supreme Court hadn't barred banks from classifying any loans as non-performing assets, it said in the filing.
SBI has focused on providing more consumer loans, which are perceived as less risky than corporate borrowing, to minimize loan losses. Still, the Reserve Bank of India expects non-performing assets in the banking sector to rise to 13.5% of total advances by the end of September from 7.5% last September. If the number holds through the fiscal year ending March 2022, it would be the highest level since 1999.
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