PREVIEW-Bond trading income to boost State Bank of India net

* What: April-June results of State Bank, ICICI Bank

* When: ICICI (July 25), State Bank (July 30)

* State Bank net seen up 22.5 pct, ICICI up 5.8 pct

By Narayanan Somasundaram

MUMBAI, July 24 (Reuters) - State Bank of India (SBI.BO),
the country's top lender, is likely to say on Thursday
quarterly profit rose 22.5 percent on robust bond trading
income, but rival ICICI Bank (ICBK.BO) will see slower growth
as it cuts back on loans.

Banks in India have been riding on gains from trading in
bonds as an economic slowdown hurt demand for loans, but rising
bond yields on the back of a record government borrowing plan
could dent income from the treasury operation in coming
quarters.

Bond yields, which move inversely to prices, have risen 20
basis points since mid-June after the government set a 4.51
trillion rupees ($93 billion) target for borrowing in 2009/10
to bridge a fiscal deficit seen at the highest in 16 years.

"Most banks will take a hit in treasury income, though not
a major one this quarter," said Darpin Shah, a sector analyst
at Dolat Capital, referring to July-September. "But going
forward it will show especially in the December quarter."

Loan growth outlook and capital-raising will be in focus
for State Bank after the government said this month it may
lower its stake to 55 percent from 59.4 percent. Chairman O.P.
Bhatt has said the bank will need to raise up to $4 billion in
equity this year. [ID:nBOM537847]

For earnings forecast see table at bottom

Defaults by customers will be watched for ICICI (IBN.N),
which has slowed lending to rein in bad debts that had risen to
1.95 percent of net advances by March.

"Slippages and provisioning are likely to remain elevated,"
brokerage Prabhudas Lilladher said in a research note.

Indian bank loans growth INLOAN=ECI slowed to about 16
percent in June from almost double that in the fiscal year
ended March 2008 as industrial activity slowed.

Analysts see credit growth reviving in the second half of
2009/10 as economic optimism returns, but do not expect it to
reach anywhere near levels seen in 2007/08. Six analysts on
average expected bank credit growth to touch 18 percent by
March.

Slower loan growth coupled with lending rate cuts under
government pressure would hit State Bank's net interest
margins, a key measure of efficiency, analysts said.

State Bank, which along with its associates controls a
quarter of Indian bank loans and deposits, has dropped rates by
200 basis points since last November and offers one of the
lowest bank lending rates now.

Bhatt has said he aims to keep net interest margins around
2.5 percent this year, compared with over 3 percent last year.

Shares of State Bank are up 32 percent so far this year and
ICICI shares have jumped 71 percent, compared with the 52
percent rise for the sector index .BSEBANK and a 57.4 percent
gain for the benchmark index .BSESN.

Following are the forecasts from a Reuters poll of 14
brokerages for the June quarter.
NET PROFIT (in billions of rupees)
---------------------------------------------------------------
- COMPANY MEAN % CHANGE/YR P/E DUE ON
----------------------------------------------------------------

STATE BANK 20.1 22.5 9.99 July 30
ICICI BANK 7.7 5.8 24.12 July 25
---------------------------------------------------------------
-
NET INTEREST INCOME (in billions of rupees)
---------------------------------------------------------------
- STATE BANK 49.3 2.3
ICICI BANK 21.3 1.9
---------------------------------------------------------------
- Poll Contributors: Angel Broking, Batlivala & Karani,
CLSA Asia Pacific, Kotak Institutional Equities, Motilal Oswal,
Prabhudas Lilladher, Morgan Stanley, Religare, KR Choksey
Shares & Securities, ICICI Securities, Anand Rathi, Macquarie,
IDFC-SSKI and Sharekhan.
($1=48.4 rupees)
(Editing by Ranjit Gangadharan and Muralikumar Anantharaman)