Mumbai: The share price of State Bank of India (SBI), India’s biggest bank by assets, declined on the Bombay Stock Exchange on concerns that a government order to forgive debt to poor farmers will spur a rise in bad loans. The stock declined 2.36%, or Rs42.95, to Rs1,779.20 on Monday.
Morgan Stanley and Macquarie Research cut their rating after SBI chairman O.P. Bhatt told analysts on a conference call on 2 May that more farmers had stopped repaying loans since the debt waiver was announced.
SBI has fallen 21% since finance minister Palaniappan Chidambaram told banks to forgive Rs60,000 crore of debt in his budget speech on 29 February.
The Mumbai-based lender, 59.7% owned by the government, has the most loans to the agricultural sector among Indian banks.
“We are surprised at how quickly the NPLs (non-performing loans) have accrued on the agri portfolio,” Credit Suisse analysts Aditya Singhania and Srinivasan R. said in a note to clients. “The increase in NPLs across most businesses, including retail, small and medium enterprises, and mid-corporates, is also worrying.”
The government plans to waive all loans overdue as of December for farmers who own less than 2ha of land and will arrange a one-time settlement for large farm loans.
Chidambaram has pledged to compensate the banks, without specifying if the full amount will be paid.
SBI’s share price target was cut to Rs1,550 from Rs1,910 and its rating reduced to “underweight” from “equal-weight”, Mumbai-based analysts Anil Agarwal and Ashish Jain of Morgan Stanley said in a note to clients on Monday.
The bank’s non-performing assets rose to Rs12,800 crore at the end of March compared with about Rs10,000 crore a year earlier, the lender had said on 2 May.
“State Bank reported a 21% sequential increase in non-performing loans,” Agarwal and Jain said in the note. “We expect non-performing loans to increase as we move forward.”
Macquarie Research cut SBI’s stock rating to “underperform” from “neutral”, analysts Seshadri Sen and Mudit Painuly said in a note.
“Asset quality at the bank remains under pressure,” the Macquarie analysts said.
Saikat Chatterjee in New Delhi contributed to this story.