* SBI Q1 net profit at 32.41 bln rupees versus 36.2 bln
* Posts second consecutive drop in quarterly net profit
* Analysts expect asset quality pressures to loom in FY14
* Shares fall to their lowest level since Dec. 2011
(Adds context on sector, analysts' comments, details)
By Swati Pandey
MUMBAI, Aug 12 An increase in distressed loans,
and the provisions to guard against them, are likely to eat into
the profits of State Bank of India (SBI) this financial
year and also hurt its smaller state-run rivals.
State-run SBI is India's largest lender and creditor to many
major companies including Suzlon Energy and Lanco
Infratech. These firms and others in the
infrastructure and manufacturing sectors have been hit as Asia's
third largest economy grows at its slowest pace in a decade and
regulatory hurdles hinder foreign investment.
Indian banks will also have to contend with rising interest
rates and a likely increase in bad corporate loans after the
central bank introduced monetary tightening measures this
quarter to bolster the rupee, which fell to a record low against
the dollar last week.
"I can't see why financial 2014 should get better for SBI.
Today, the asset quality pressures are huge, not for SBI alone,
for the entire banking sector," said ASV Krishnan, banking
analyst for Ambit Capital.
The current financial year ends on March 31, 2014.
A spurt of loan defaults and lower net interest income in
the three months that ended June triggered the second
consecutive drop in quarterly profit for SBI, sending its shares
to their lowest since December 2011.
Most Indian state banks, including Bank of Baroda,
Punjab National Bank and Bank of India Ltd
also posted a spurt in bad loans.
SBI's loan troubles contrast with HDFC Bank,
India's third largest private lender, which has maintained
consistently strong growth due to its conservative lending
HDFC Bank's profits rose 30 percent in the first quarter, in
line with its profit growth for every quarter in the last decade
Net new additions to SBI's non-performing loans were around
90 billion rupees ($1.48 billion) in the fiscal first quarter,
above analysts' expectations of around 55-60 billion rupees.
Total bad loans were 5.55 percent of the bank's total book,
up from 4.99 percent in the same year-ago period.
The bank had said in May it would restructure, or ease
payment terms, on loans totalling up to $1 billion in 3-4
months. Figures for the June quarter were not available.
Last month, SBI's client Lanco started a process to
restructure debt totaling $1.2 billion after economic weakness
impacted the performance of some of its businesses such as power
and engineering and construction.
"I expect the street to sharply downgrade earnings estimates
for SBI for financial 2014. There is no catalyst for
improvement," said Vaibhav Agarwal, banking analyst for
Mumbai-based Angel Broking.
SBI missed estimates and posted on Monday a 13.6 percent
drop in net profit to 32.41 billion rupees ($532.49 million) in
the fiscal first quarter compared with 37.52 billion rupees a
Net interest income rose 3.5 percent to 115.12 billion
Analysts had expected a net profit of 36.2 billion rupees,
according to Thomson Reuters I/B/E/S.
At 0910 GMT, SBI shares were down 3.2 percent at 1,611.40
rupees, after having dropped as much as 5.35 percent earlier,
while the Mumbai market index was trading up 1 percent
and the banking sector index was down 0.7 percent.
($1 = 60.8650 Indian rupees)
(Reporting by Swati Pandey; Editing by Miral Fahmy)