Mumbai: State Bank of India’s net profit more than doubled in the December quarter from a year earlier, helped by a one-time gain from the sale of a stake in its life insurance venture, but improvement in asset quality fell short of the lender’s own expectations.

India’s largest lender said Friday that net profit rose to Rs2,610 crore in the fiscal third quarter, up 134% from Rs1,115.34 crore a year ago. The profit was slightly higher than the estimate of Rs2,509.70 crore in a Bloomberg poll of 18 analysts.

The profit increase was largely on account of a one-time gain of Rs1,755 crore from the sale of a 3.9% stake in SBI Life Insurance Co. Ltd.

Provisions against bad loans dropped to Rs7,244.55 crore in the quarter from Rs7,644 crore a year ago and Rs7,669.66 crore in the July-September period. SBI also set aside in the quarter Rs1,400 crore against standard assets that are at risk of turning bad.

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Asset quality improved a shade with SBI recovering Rs3,994 crore of loans and upgrading Rs2,434 crore more. The improvement fell short of the bank’s own expectations—a fact chairman Arundhati Bhattacharya blamed on the 8 November invalidation of high-value currency notes, which made it tough for cash-dependent borrowers to repay debt. “We were very hopeful of seeing most of the resolutions come in during this quarter. However, demonetization has actually pushed this by another quarter," Bhattacharya said.

Gross non-performing assets (NPAs) rose marginally by 2.3% to Rs1.08 trillion at the end of the December quarter from Rs1.06 trillion in the September quarter. On a year-on-year basis, gross NPAs jumped 48.61% from Rs7,2791.73 crore.

Gross NPAs made up 7.23% of total assets at the end of the December quarter compared to 7.14% in the previous quarter and 5.1% in the year-ago quarter.

Loans worth 0,185 crore slipped into the NPA category, of which, 10,069 crore were on the bank’s corporate loan book. Of the corporate loan slippages, 73%, or 7,341 crore, were from the bank’s so-called watchlist. SBI pared its watchlist, which consists of loans at risk of turning bad, to 7,992 crore as of 31 December, from 5,951 crore in the September quarter.

According to Bhattacharya, the bank’s numbers will start looking better in the next financial year, once demand for credit revives.

SBI’s net interest income (NII), or the core income a bank earns by giving loans, rose by 7.7% to Rs1,4751.54 crore in the December quarter from Rs13,697.01 crore a year ago. Non-interest income, which includes fees, commissions and investment gains, rose 58.73% to Rs9,661.92 crore from Rs6,086.97 crore a year ago. The figure includes the one-time stake sale gain.

“No major negatives in the SBI result, most developments have been in line with expectations," said a banking analyst at a domestic securities house, requesting anonymity. “Owing to its position in the banking sector, whenever the asset quality cycle starts reversing and recoveries happen, the bank will benefit the most. As of now, the only concern is around containing fresh slippages, which the bank feels it can do. We maintain a BUY call on the SBI stock."

The government’s demonetization drive led to higher accumulation of low-cost deposits. Total deposits rose 22.1% from a year ago to Rs20.41 trillion while advances were up 4.1% to Rs14.48 trillion.

On Friday, SBI shares rose 0.15% to Rs276.25 on BSE, on a day the benchmark Sensex barely budged at 28,334.25 points.

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