Biggest Indian Bank Cuts Loan-Growth Target After Profit Jumps

(Bloomberg) -- State Bank of India posted a higher profit, bolstered by interest income and a sale in its insurance unit while reducing its forecast for new loans amid the pandemic that's still racing through the nation.

Although the bank has covered more than 86% of its existing bad loans, it will be cautious on boosting credit as the virus-led uncertainty continues to hurt the economy, Chairman Rajnish Kumar said at a briefing on Friday. India's biggest lender cut its loan-growth target to 8% from 10% for the year started April 1.

“Any lender who doesn't take risk is not a lender,” Kumar said. “But we will do so with eyes and ears open.”

SBI, which owns almost a quarter of India's loan market, has a key role in the revival of an economy that probably shrank the most on record in the period. Cash-strapped companies are reeling following a harsh lockdown that has also left millions jobless.

SBI's shares rose 2.6% in Mumbai after it reported net income climbed 81% from a year earlier to 41.9 billion rupees ($560 million) in the three months ended June 30. Its gross bad-loan ratio dropped to 5.44% at the end of June from 6.15% three months earlier.

The bank's loan book under moratorium -- a repayment freeze allowed by the regulator until end-August -- was 130 billion rupees or 9.5% of total advances at the end of June.

“There is no suppression of bad loans due to the moratorium,“ Kumar said. However, the bank estimates as much as 630 billion rupees of debt may tip into the non-performing category in this financial year compared with 496 billion rupees a year ago.

Banks face a potential jump in soured debts after the moratorium ends next month. The Reserve Bank of India estimates the gross bad loan ratio across India's banking sector will rise to a two-decade high of 12.5% in March from 8.5% a year ago.

SBI has already turned cautious on loan growth to protect its asset quality. The Mumbai-based lender has the largest outstanding amount of non-performing loans in the country, partly due to the sheer size of its balance sheet. It has been focusing on relatively safer credit to individuals while slowing growth in its corporate book.

©2020 Bloomberg L.P.