SBI's bad-loan metrics send shares higher

By Abhirup Roy and Devidutta Tripathy

MUMBAI (Reuters) - State Bank of India (SBI.NS), the nation's biggest lender by assets, reported a 32 percent slide in quarterly net profit on Friday, although a rise in bad loans was smaller-than-expected.

Indian banks across the board have seen sharp falls in profit this year as they made provisions against bad loans.

State Bank of India, which accounts for more than a fifth of India's total bank loans and deposits, said standalone net profit fell to 25.21 billion Indian rupees ($377 million) for the three months to June 30 from a year earlier, roughly matching analysts' estimates of 25.4 billion rupees.

However, its gross bad loans rose 3 percent quarter-on-quarter to 1.02 trillion rupees as of end-June, much less than expected and sending the bank's shares up more than 7 percent.

Central Bank of India (CBI.NS), the ninth-biggest state lender, by comparison, posted a more than 10 percent sequential rise in gross bad loans in April-June.

State Bank Chairman Arundhati Bhattacharya maintained the bank's watch list, or loans that could be potential non-performing assets, at the previous quarter's 310 billion rupees.

That is on top of 1.38 billion rupees of stressed loans the bank had as of the end of June.

The level of bad loans held by Indian banks has surged this year after an asset quality review ordered by the regulator Reserve Bank of India which wants all bad and stressed loans to be fully provided for by March 2017.

Bhattacharya has previously said that 70 percent of State Bank's watch list loans could become non-performing assets (NPAs) in the worst case scenario, but that figure would be as low as 30 percent if the economy improves.

"We are still looking at (bad loans) resolutions picking up pace, Bhattacharya told a news conference.

"Resolutions have started but they have not picked up pace to that extent, and especially in respect of larger accounts, we really need to see much more improvement," she said, adding that she expected improvement in bad loan resolutions in the later part of the year.

While growth in Indian banks' bad loans may have peaked, analysts say the requirement of higher provisions and credit costs will keep the dominant state-run banking sector under pressure, helping private sector lenders gain ground.

State Bank of India has performed better than other state-run lenders in managing its bad loans. It is also better placed due to a higher share of low-cost deposits, a comfortable capital ratio and improving operating profitability, Goldman Sachs said in a report this month.

State Bank's gross bad loans as a percentage of total loans rose to 6.94 percent as of end-June, from 6.50 percent in March. Provisions for bad loans fell to 63.4 billion rupees in the June quarter from 121.39 billion rupees in the March quarter.

State Bank shares rose to as high as 247.95 rupees, before closing 7.2 percent higher at 243.20 rupees.

Central Bank of India and state-run Bank of India (BOI.NS) both reported first-quarter net losses on Friday.

($1 = 66.8000 Indian rupees)

(Reporting by Devidutta Tripathy and Abhirup Roy; Editing by Muralikumar Anantharaman and Susan Fenton)