Increase in distressed loans eats into the profits of State Bank of India

19 August 2013 - Which Way To Pay

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Bad loans to obstruct state bank' 2013/14 profits

An increase in distressed loans and the provision to guard against them is likely to eat into the profits of State Bank of India (SBI) this financial year. Staterun SBI is India's largest lender and creditor to many major companies.

Rising Interest Rates of loans

Indian banks will have to content with rising interest rates and an increase in bad corporate loans after the central bank introduced monetary tightening measures this quarter to bolster the rupee, which fell to a record low against the dollar last week. "I can't see why financial 2014 should get better for SBI. Today, the asset quality pressures are huge, not for SBI alone, for the entire banking sector," said ASV Krishnan, banking analyst for Ambit Capital. The current financial year ends on March 31, 2014.

Most Indian State Bank posted spurt in bad loans

Most Indian state banks, including Punjab National Bank and bank of India Ltd also posted a spurt in bad loans. "I expect the street to sharply downgrade earnings estimates for SBI for financial 2014. There is no catalyst for improvement," said Vaibhav Agarwal, banking analyst for Mumbaibased Angel Broking. SBI's loan troubles contract with HDFC Bank, India's third largest private lender, which has maintained consistently strong growth due to lending strategies. Their profits rose 30% in the first quarter.

SBI missed estimates and posted on Monday a 13.6 percent drop in net profit to 32.41 billion rupees in the fiscal first quarter compared with 37.52 billion rupees a year ago. Net interest income rose 3.5 percent to 115.12 billion rupees.

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