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India’s largest lender State Bank of India’s (SBI) June quarter profit missed analysts’ estimates and dropped 13.6% from the year-ago quarter. The stock dropped to its 52-week low after the earnings announcements and at 1.45pm was trading 2.5% down.

More than the drop in net profit, what is worrying is the rise in the bank’s bad assets. The quantum of gross bad assets rose to 60,891 crore from 47,156 crore a year ago. In the last quarter alone, the bad assets grew by 9,700 crore. In percentage term, SBI’s gross non-performing assets (NPAs) is now 5.56%, the highest in the past 32 quarters.

After setting aside money or providing for it, SBI’s net NPAs are now 29,990 crore, or 2,83% of total advances, its worst in the past 35 quarters. In absolute terms, net NPAs have grown by 9,666 crore in the past year and by over 8,000 in the June quarter alone.

As a result of this, the bank’s provision coverage ratio has dropped from 66% to 60.60%.

Chairman Pratip Chaudhuri, who will hang up his boots in September, had little choice before him. Had he wanted to show lesser net NPAs, he would have needed to set aside more money and that would have brought down the bank’s net profit, something an outgoing bank chairman can’t afford.

With no sign of India’s macroeconomic woes easing, SBI is unlikely to lift its performance in the coming quarters. Being the nation’s largest bank and roughly accounting for one-fifth of the country’s banking industry, it’s a proxy for economy.

With more restructured loans turning bad, SBI is sure to have tough time ahead unless its management takes a hard look at the quality of assets and starts managing them proactively.

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