SBI confident of asset quality after posting record profit in Q1

Top lender State Bank of India sought to allay concerns about its asset quality and forecast credit growth in low double digits for the full year, after reporting earnings that were well above estimates for the final quarter of fiscal 2021.

Most Indian banks have reported strong numbers for the March-quarter on a lower base and as lending picked up before the second coronavirus wave, but fresh lockdowns have since fanned worries about an increase in bad loans.

“We expect credit growth to be 10% (for the full year) if hopefully the second wave of COVID-19 is behind us by the close of this quarter,” Chairman Dinesh Khara said on a post-earnings call.

SBI’s loans grew 5.7% in fiscal 2021, compared with the bank’s estimate of 7%. They grew 5.6% in the previous year.

Siddharth Purohit, research analyst at SMC Institutional Equities, however, said it would be difficult to reach double-digit credit growth as corporate borrowing remained slow.

Shares of the bank closed up 4.3% to their highest since early March, and are up around 46% for the year.

Gross bad loans as a ratio of total loans, a measure of asset quality, ticked up to 4.98% from 4.77% a quarter earlier. India’s top court in March lifted an interim stay that had prevented banks from recognising bad loans.

“Going forward we do not see any concern on the asset quality front,” Khara said, adding that the economy is expected to bounce back sooner than it did last year even as the bank remains on a “wait-and-watch” mode.

State Bank of India, the country’s largest lender by assets, on Friday posted a record quarterly profit, helped by lower provisions for bad loans, and announced its first dividend in four years.

Net profit rose 80% to 64.51 billion rupees ($883.09 million) for the three months ended March 31, from 35.81 billion rupees a year earlier, SBI said in a regulatory filing. Analysts had expected a profit of 61.47 billion rupees, according to Refinitiv IBES data.

SBI announced a dividend of 4 rupees per share, its first payout since May 2017, when it had rewarded shareholders with 2.6 rupees per share.

The lender reportedly received a windfall of nearly 40 billion rupees as part of dues owed by bankrupt steelmaker Bhushan Power and Steel. Provisions for bad loans slid 16.6% to 99.14 billion rupees.

Indian shares end higher: Indian shares closed higher on Friday, as financial stocks jumped after State Bank of India’s (SBI) quarterly earnings, with sentiment aided by a fall in daily COVID-19 infections.

The blue-chip NSE Nifty 50 index added 1.81% to close at 15,175.30, while the benchmark S&P BSE Sensex gained 1.97% to end at 50,540.80. For the week, both the indexes rose more than 3%.

Daily cases of the novel coronavirus in India stayed below the 300,000-mark for the fifth straight day, well below the record of more than 414,000 earlier this month.

“Banks led the charge today, buoyed by SBI earnings... broader market too witnessed good activity as the curve of daily (coronavirus) cases displayed a declining trend,” said S. Ranganathan, head of research at LKP Securities.

The Nifty Bank Index jumped 3.82% after a more than 1% drop on Thursday, helped by a 4.3% rise in SBI after the country’s largest lender by assets reported a record quarterly profit.

Private-sector lenders HDFC Bank and ICICI Bank were the top boosts to the Nifty 50, closing 4.5% and 3.9% higher, respectively.

The Nifty energy index ended 0.89% higher, boosted by a 3.7% rise in Hindustan Petroleum Corp Ltd after the state-run refiner reported higher quarterly net profit on Thursday.

The Indian rupee also gained on Friday, tracking the uptick in domestic markets, while the benchmark 10-year bond yield fell for a fifth straight week.

Globally, stocks were steady on Friday after a volatile week, taking their lead from a stronger Wall Street as US data tempered inflation fears, while the dollar approached three-month lows on reduced bets of early Federal Reserve rate hikes.

Separately, India’s biggest airline IndiGo said on Friday it had selected jet engine manufacturer CFM International’s LEAP-1A engines to power its fleet of 310 new Airbus aircraft. The agreement includes 620 new installed engines, associated spare engines and a multi-year service agreement, which will be delivered from 2023 onwards.

IndiGo had already chosen CFM’s LEAP-1A engines for 280 Airbus aircraft in 2019 after dropping its previous supplier Pratt & Whitney, a subsidiary of Raytheon Technologies.

The company said latest deal brings the total number of LEAP-powered Airbus aircraft in IndiGo’s fleet, or currently on order, to 590. IndiGo is one of European planemaker Airbus’ largest customers.