SBI Q4 profit drops, sees credit pickup

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MUMBAI/KOLKATA (Reuters) - State Bank of India posted an unexpected 32 percent drop in quarterly profit, hit by a jump in bad loan provisions, but the country's largest lender saw a strong pickup in credit demand this fiscal year in a fast-expanding economy.

SBI shares fell as much as 4.4 percent after the results, and ended down 4 percent at 2,222.65 rupees in the main Mumbai market that fell 1.6 percent. The banking sector index closed 1.9 percent lower.

The bank expects credit growth of 21-22 percent in this fiscal year that began in April, up from 17 percent in the year ended in March, Chairman O.P. Bhatt told reporters in the eastern Indian city of Kolkata after a board meeting.

Bank loans in India grew an annual 17.1 percent in late April, according to Reserve Bank of India (RBI) data, in line with a rebound in business and consumer confidence, from a low of 9.7 percent last October and compared with 16.7 percent at end-March.

Analysts expect loan demand to pick up further in the first half of 2010/11 that started on April 1 as industries will need more funds to expand capacity in an economy forecast to grow more than 8 percent in this fiscal year.

"The economy will do better than the last year and, going by the indications, inflation is also going to come down ... We are seeing an increased demand in sectors such as housing, agriculture and infrastructure," Bhatt said.

The RBI sees non-food credit growth of commercial banks at 20 percent in 2010/11, still a far cry from growth rates of above 30 percent in the pre-crisis period.

Bad debts for State Bank, which with associates, controls a quarter of Indian bank loans and deposits, was likely to come down in the coming quarters, Bhatt said.

Gross non-performing assets of the bank as a percentage of loans rose to 3.1 percent at end-March from 2.9 percent in the year ago period. Provisions for bad loans jumped 69 percent to 21.87 billion rupees ($485 million), weighing down earnings.

A RBI directive requires the bank to raise the provisioning to 70 percent by September from 10 percent previously, but Bhatt said he was talking to the RBI to extend the deadline.

"Asset quality pressures are continuing, but fundamentally State Bank is one of the strongest public sector banks," said Vaibhav Agrawal of Angel Broking. "They have made very aggressive provisions for bad loans and that has hit the bottom line."

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RIGHTS ISSUE

State Bank's January-March net profit was 18.67 billion rupees, compared with 27.42 billion a year earlier, and in line with what a source with direct knowledge of the matter had earlier told Reuters.

Net interest income, a key measure of profitability, rose nearly 39 percent from a year ago to 67.21 billion rupees.

A Reuters poll of analysts had forecast a 3 percent rise in net profit to 28.22 billion rupees on net interest income of 64.86 billion rupees.

The net interest margin, a key measure of efficiency, was 2.96 percent in the March quarter compared to 2.39 percent a year ago, and Bhatt said the margin for the full fiscal year would be higher than the previous year.

Bhatt also reiterated the bank is looking to raise 150-200 billion rupees through a rights issue, without elaborating.

Last month, ICICI Bank and HDFC Bank, India's top two private sector lenders, said quarterly profit grew by a third, and forecast strong growth in credit demand in a fast expanding economy.
 
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