UPDATE 2-India's State Bank Q1 beats f'cast, ICICI drops
(Adds analysts' comments, ICICI comments, details, byline)
MUMBAI, July 26 (Reuters) - State Bank of India (SBI.BO) beat forecasts with a 15 percent rise in quarterly profit as other income more than doubled, but its private sector rival ICICI Bank (ICBK.BO) posted an unexpected fall in profits after its bond and equity portfolios lost value.
Both banks saw a rise in bad debts as higher interest rates hurt retail loans such as personal loans, credit card dues and automobile loans.
India's central bank hiked interest rates to a six-year high of 8.5 last month in an effort to control inflation, which is holding just below 12 percent, and many expect it to tighten policy again at a review on Tuesday. See [ID:nBOM260256].
ICICI Bank, India's no.2 lender, posted a 6 percent drop in net profit to 7.28 billion rupees ($172 million) in the June quarter as the value of bonds and shares it holds fell by 5.94 billion rupees.
Analysts had expected a rise in net profit of 8.1 percent to 8.38 billion rupees.
"The road ahead is clearly bumpy for ICICI. The numbers show the bank may be heading for a sustained slowdown," an analyst with a local brokerage said. He did not want to be named as he is not authorised to speak to the media.
Ten-year bond yields IN082418G=CC rose by 75 basis points in the quarter, due to higher rates, eroding the value of banks' bonds, and the benchmark share index .BSESN slid 14 percent.
ICICI's net non-performing assets rose 51 percent to 40.3 billion rupees.
"This is cause for concern as the rapid rise in net NPA is due to underprovisioning, casting doubts on the asset quality," Vaibhav Agarwal of Angel Broking said.
ICICI (IBN.N), which is also listed in the United States, increased provisions to 7.92 billion rupees from 5.52 billion rupees.
"Every increase in inflation and interest rate could have an impact on credit quality. We are watching it," Chanda Kochhar, joint managing director of ICICI Bank, said in a conference call.
She expected loan growth to sustain at 15-20 percent as corporate loan expansion was still robust, despite growth in its mainstay retail credit slipping to 5 percent.
Net interest income, the difference between interest earned and interest paid, rose 41 percent to 20.9 billion rupees, which analysts said was because the bank slowed the pace at which it took on fresh deposits.
STATE BANK
India's top lender, State Bank, said net profit in the June quarter rose to 16.41 billion rupees from 14.26 billion rupees a year ago, as its other income, primarily from advising clients, selling insurance and mutual funds, more than doubled to 24 billion rupees.
A Reuters poll of analysts had forecast a 2.9 percent rise to 14.67 billion rupees in its fiscal first quarter.
It also gained from a write-back of provisions to the tune of 2.47 billion rupees, its profit and loss statement showed.
State Bank, which has more than 10,000 branches across India and overseas, also gained from its access to deposits that cost just 3.5 percent in annual interest payments.
Its pretax losses from treasury operations widened to 8.17 billion rupees from 3.17 billion. It set aside 16.6 billion rupees to cover notional losses in its bond portfolio.
State Bank, which along with its associates accounts for a quarter of India's banking business, increased its provisions to 15.5 billion rupees from 1.59 billion rupees.
Its total income rose nearly a third to 162 billion rupees in the June quarter.
State Bank's shares fell 31 percent in the quarter, sharper than a 23 percent drop in the sector index .BSEBANK. Shares in ICICI Bank (ICBK.BO) fell 18 percent. ($1=42.3 rupees) (Editing by David Christian-Edwards)
