Top lender SBI eyes return to profitability in Q3 on easing bad loan impact

State Bank of India is confident of returning to profitability from the December quarter onwards as the impact of bad loans eases, its chairman said after the nation's top lender by assets plunged to its third straight quarter of losses.

India's banks have been plagued by a surge in non-performing loans which hit a record $150 billion at the end of March. Twenty-one lenders led by SBI, in which the Indian government owns a majority stake, accounted for 86 per cent of the pile.

SBI's gross non-performing loans eased quarter on quarter to Rs 2.13 trillion ($30.8 billion) by the end of June, while provisions for bad loans also fell sharply.

But lower trading income and treasury losses meant the lender, which accounts for about a fifth of India's banking assets, reported a Rs 48.76 billion ($707.28 million) net loss for its fiscal first quarter ending June.

That compared with a record loss of Rs 77.18 billion in the previous quarter, and a net profit of Rs 20.06 billion a year earlier.

On a conference call with journalists after the results, the bank's chairman Rajnish Kumar said he expected additions of bad loans to be more controlled going forward, and loan recoveries to gather pace as default cases are resolved at the bankruptcy court.

Responding to a question on when the bank would be able to report a net profit, he said: "If you ask me 100 per cent, then take it from December onwards."

Kumar said the outcome of a case at the bankruptcy appellate tribunal will determine whether the current quarter will yield a profit, but was confident of posting a profit for the three months to March 2019 and the full year ending March.

In the last quarter, SBI accounted for net mark to market losses on investments of Rs 58.93 billion due to spike in bond yields, despite an option given by the central bank to spread the losses over four quarters.

Its gross bad loans as a percentage of total loans fell to 10.69 per cent at the end of June from 10.91 per cent in the previous quarter, though that was above 9.97 per cent a year earlier.

Provisions for bad loans rose 7.5 per cent from a year earlier to Rs 130.38 billion, but were more than 4per centnt lower compared with the March quarter.

Asutosh Mishra, a banking sector analyst at Mumbai's Reliance Securities, said SBI's provisions could remain at a relatively elevated level in the current quarter, but expected it to put asset quality woes behind it and focus on loan book growth in the second half of the fiscal year.

"One more quarter of pain is remaining," he said.

SBI shares closed 4.1 percent lower, after briefly rising as much as 2.8 per cent to their highest in six months following the results.