STATE Bank of India, India's largest lender, beat expectations with a 25 per cent rise in quarterly profit on Friday (November 6) and a drop in its closely monitored bad debt ratio, predicting an improvement ahead.
Analysts in the sector have been watching for signs that credit quality is stabilising in India. State-owned banks that dominate the industry have been grappling with their worst bad debt burden in a decade, after years of liberal lending and slow credit growth.
Friday's earnings provided room for optimism. SBI, which has been tightening scrutiny of borrowers and increasing fund recovery efforts, said gross bad loans as a proportion of total loans dipped to 4.15 per cent in July-September from 4.29 in the previous three months.
SBI chairman Arundhati Bhattacharya said the economy needed to grow faster to secure stable asset quality, but forecast improvements ahead for the bank, a bellwether for the industry.
"Overall, I think we are beginning to see the end of this entire cycle and today I would say I am much more confident about the quality of assets going forward," she told reporters.
Punjab National Bank, India's fourth largest, echoed the dip in bad loans with a ratio of 6.36 per cent versus 6.47 per cent.
The news sent SBI shares up over 4 per cent on the day and PNB more than 3 per cent, against a near flat market.
"SBI and PNB's asset quality has been stabilising for the past few quarters," said Vaibhav Agarwal, analyst at Angel Broking. "Large state-run banks that have slowed down lending are seeing improvement in asset quality: you have to be conservative in a bad environment."
