Bad loans hurt state-run banks, push SBI to surprise third-quarter loss

Mumbai: State Bank of India (SBI), the nation's top lender by assets, reported a surprise third-quarter net loss on higher bad-loan provisions and lower trading income, but it said it expected an improvement in performance in the next financial year.

The third-biggest state-run lender Bank of Baroda said net profit more than halved on higher provisions, while three smaller state-run banks — Central Bank of India, UCO Bank and Syndicate Bank - posted losses.

Bad loans at Indian banks have nearly doubled in the past four years as an economic slowdown took its toll on the ability of companies to repay debt, exacerbated in the case of some banks which analysts said had expanded lending too fast.

The bulk of India's Rs 9.46 trillion ($147 billion) in non-performing loans at the end of September were held by 21 state banks.

The government and the Reserve Bank of India (RBI) have been pushing for banks to clean up their bad debts, saying the overhang was choking new lending in Asia`s third-largest economy.

The RBI has pushed about 40 of the biggest corporate loan defaulters into India`s new bankruptcy proceedings and said creditor banks must ensure at least 50 percent of bad loans with those firms were provisioned by March.

SBI, which accounts for more than a fifth of India's banking assets, said a central bank audit of its books for the past financial year led to the addition of Rs 232.39 billion ($3.61 billion) in bad loans, contributing to higher provisions.

That coupled with lower trading income due to rising bond yields resulted in a net loss of Rs 24.16 billion for the three months ending Dec. 31, compared with a restated net profit of Rs 18.20 billion a year earlier.

Analysts had forecast a Rs 20.67 billion profit at SBI.

SBI Chairman Rajnish Kumar, who took the helm in October, said bad loan additions were peaking. He said the bank`s focus on retail lending and other steps would lift performance in the next financial year.

"Going forward there is a lot of optimism," Kumar said, adding SBI aimed to limit the rise in bad loans and provisioning costs at 2 percent in 2018/19.

Siddharth Purohit, a sector analyst at SMC Institutional Equities, described SBI's results that were reported after trading hours as "disappointing". He said shares were likely to fall on Monday when trading resumed.

"Not only for SBI, for most other banks also at least the next two quarters will remain challenging because of the provisions for the bankruptcy cases," he said.

($1 = Rs 64.35)