Mumbai: The biggest quarterly gains posted by government bonds in at least a decade helped State Bank of India (SBI) and ICICI Bank Ltd, the nation’s two largest lenders, to boost investment returns and post an increase in third-quarter profit.
SBI, which accounts for almost one-fifth of the nation’s loans, on Saturday posted a 37% advance in net income to Rs2,480 crore, matching analyst forecasts. At Mumbai-based ICICI Bank, profit rose 3.4% to Rs1,270 crore, more than analysts had expected.
The Reserve Bank of India (RBI) cut interest rates four times in the final three months of 2008 as inflation slowed, helping 10-year bonds complete their best year since 2001. That boost may not sustain banks in the near term, as they set aside more funds to cover loan delinquencies.
“Gains from treasury will be limited as we go ahead,” U.P. Bhat, who manages Rs4,300 crore at Canara Robeco Asset Management Co. Ltd in Mumbai, said over the phone. Economic activity is unlikely to pick up before the second half and banks may find it difficult to increase lending.
Growth in Asia’s third largest economy has slowed for two straight quarters, and the government forecasts an expansion of 7% in the fiscal year ending 31 March, the weakest since 2003, after recording average annual growth of at least 9% in the previous three fiscals.
In the most recent quarter, bond holdings buoyed both banks. At ICICI Bank, income from treasury operations, which includes trading in bonds and currencies, climbed at least threefold from a year earlier to Rs976 crore. At SBI, also based in Mumbai, treasury income jumped 51% to Rs6,000 crore.
In other areas, the performances of the two lenders diverged. SBI’s deposits climbed 36% in the quarter, and advances rose 29%, with large companies’ borrowings rising 47% and retail credit increasing 27%.
ICICI Bank’s deposits fell 9% to Rs2.09 trillion. Advances dropped 1.3%, even as loan growth for Indian banks averaged 28% in the three months ended 31 December, according to RBI data.
SBI’s gross non-performing assets as a percentage of loans shrank to 2.61%, from 2.82% a year earlier. The lender increased the funds set aside to cover defaults by 16% to Rs515 crore.
ICICI Bank increased its provisions by 33% to Rs1,010 crore.
Banks will have to watch out for a rise in bad debts, especially from the real estate sector, said Canara Robeco’s Bhat.
ICICI Bank last year racked up the largest losses tied to the global financial crisis among Indian lenders, leading to a run on the bank in September as depositors grew concerned about the company’s capital adequacy. ICICI Bank reduced operating expenses by 19% during the quarter, without specifying how it did so.
“ICICI will have to cut its rates to once again get competitive,” said R.K. Gupta, who manages Rs250 crore at Taurus Mutual Fund in New Delhi, including ICICI shares. “Still, the results are better than expected and will ensure that investor confidence isn’t shattered. The worst seems to be over for the bank.”
ICICI Bank’s shares fell 3.8% to Rs363.85 on Friday, valuing the company at Rs40,500 crore. The shares have declined 19% this year. That compares with a 10% retreat in the Bombay Stock Exchange’s benchmark Sensex.
SBI declined 4.5% to Rs1,041.5 on Friday, valuing the company at Rs66,100 crore. Like ICICI Bank, its shares have fallen 19% in 2009.