State Bank of India profits drop on new bad loan provisions

Profits at State Bank of India, the country’s biggest publicly-controlled lender, dropped by almost a third in the first quarter in a further sign that India’s struggle with stressed assets is not disappearing any time soon.

Net profit at the bank, which has been hit hard by bad loans to infrastructure, steel and power companies, dropped to Rs25.2bn ($377m or £291m) in the three months to June 30 from Rs36.9bn during the same period a year earlier, as the lender was forced to make further hefty provisions to cover stressed assets.

The bank set aside a further Rs63.4bn to cover non-performing assets. However this was down from the Rs121bn set aside to cover bad loans in the final quarter of State Bank of India’s last full financial year.

First quarter net profits were marginally ahead of analysts’ forecasts of Rs25bn. They also marked an improvement on the final quarter of last year, when net profit dropped to Rs12.6bn, pushing profit for last year as a whole down to Rs99.5bn, a 24 per cent fall.

Indian lenders have been booking heavy provisions to cover stressed assets following a push from the Reserve Bank of India amid concerns that the previously wide-spread practice of “evergreening” loans that are unlikely to be recovered would lead to even greater problems further down the line.

ICICI Bank, India’s biggest private sector lender by assets, also recently reported a 25 per cent drop in profits in its latest quarter as non-performing assets rose to 5.87 per cent, up from 3.7 per cent a year earlier.