Indian Banks Report Earnings, SBI and ICICI Profits Rise
India’s two largest banks reported their earnings last week. Both State Bank of India (SBI) the country’s biggest bank and ICICI Bank, the nations number two lender showed an increase in quarterly profits.
ICICI Bank, shares gained over 2.5% on Thursday after the lender reported a 1.1% rise in quarterly net profit. Net profit for the quarter ending September was Rs. 1,014 Crore (US$ 206.9 Million) up marginally from the same period a year earlier.
Consolidated net profit on the other hand actually fell 27.5% as the lender incurred losses on its life insurance subsidiary and its UK unit. ICICI’s UK operation had to write down US$35 Million or Rs 175 Crore on investments related to the credit crisis.
ICICI Bank suffered from speculation over its financial health at the beginning of October, in large part due to what ICICI bank claims were malicious rumours spread by unscrupulous investors looking to profit from shorting the stock. The rumours prompted runs on the bank in several south Indian cities and its stock price has taken a beating over the last year, losing over half its value, making it one of the worst performers on the BSE this year.
The bank’s exposure to $82m senior debt of Lehman Brothers, the bankrupt US banking group, were the main source of the rumours which spurred a run on the bank deposits in some Indian states. Management led by CEO KV Kamath, went to great lengths to reassure investors and depositors that it was financially sound. Orchestrating an email and text message campaign, and placing television advertisements with celebrities who endorsed the banks soundness with the claim that their own savings were held by the bank. The sudden loss of confidence forced the Reserve Bank of India to say the bank was well capitalised and that it would supply liquidity support if necessary.
SBI Feels the Pinch
On Monday, it was the turn of the State Bank of India to report earnings, and the country’s largest bank, ended up sharing some of the pain. SBI shares fell 10 per cent on worries over its bad debt provisions in spite of having achieved a more than 40 per cent rise in net profit.
SBI’s net profit increased to Rs 2,259.7 Crore or US$ 451.1 Million in the quarter ending September from Rs 1,611.4 Crore US$ 322.2 Million a year earlier. The results for the second quarter include the business of State Bank of Saurashtra which was merged with SBI in August 2008.
Investors were largely unsettled by the bank’s nod to a sevenfold increase in funds set aside to cover bad loans and losses on investments. The provision this quarter was Rs 610 Crore or US$122 Million, compared with Rs 85.7 Crores or US$ 17 Million a year earlier.
The increase in provision is largely due to the Government policy of farm loan waiver and the bank warned that net interest income had peaked. The bank’s chairman OP Bhatt said SBI’s net interest margins would come down marginally, but would continue to be above 3%. The net interest margin for the second quarter was 3.2%.
The ET quoted Mr. Bhatt suggesting that interest rates have peaked and should start to soften. “If you look at moderating inflation and (factor in) the steps taken by the Reserve Bank of India, interest rates should start showing the softening trend,” he said. When asked about the SBI’s likely steps on interest rates, Mr. Bhatt said that the bank would rather follow the wait-and-watch policy. “Interest rates would depend on a cluster of decisions taken by the regulators”.
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