State Bank of India, the country’s largest lender, managed to beat earnings estimates but that’s the last thing on the mind of investors and analysts. While the company reported a 137 per cent increase in net profit, the bank’s fresh accretion of bad loans at Rs 10,800 crore stood out like a sore thumb. The sharp increase in bad loans has shocked the market, as this is in variance with what the bank said it expected.
Moreover, the increase has been driven by deterioration in three corporate accounts, which added up to Rs 3,500 crore.
However, analysts say the bank seems confident of upgrading at least two of these accounts in the coming quarters. A hydro-electric power plant is stressed as it has not got environmental clearances. As soon as the clearances come about, the account would be upgraded. Similarly, the second account, in the construction sector, has been hit as the borrower is not being paid for a project where it was a sub-contractor. One pharmaceutical/biotech account is what analysts expect could deteriorate.
What is more worrying is also the bank’s aggression in cutting loan rates. Given the fall in margins and higher slippages, the market would like to get a fix on the bank’s strategy. Though the bank has guided for a net interest margin (NIM) of 3.7 per cent in the coming quarters, analysts think this would be difficult to achieve, given it’s strategy.
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