SBI tops DBS in market value

State Bank of India (SBI) Chairman Arundhati Bhattacharya's efforts to control bad loans have helped restore the company as the most-valuable Asian lender outside Japan and China.

A 49 per cent rally by SBI's shares this year has driven its market capitalisation past peers from domestic rival HDFC Bank to Singapore's DBS Group Holdings for the first time in 16 months. SBI's gains accelerated last week after the company posted fourth-quarter profit that beat analyst estimates as its bad-loan ratio narrowed to a year low.

"The rally in SBI is gathering more legs as investors cheer the fall in the bad-loan ratio," Alex Mathews, head of research at Geojit BNP Paribas Financial Services, said. "Funds playing for the sharpest macroeconomic bounceback in the Asia-Pacific are buying into SBI."

SBI, 59 per cent government-owned, has been boosting efforts to identify loans that could default since Bhattacharya took over as chairman in October. She also leads a group that tries to retrieve nonperforming loans. Bad debt as a percentage of total lending fell to five per cent at the end of March, down from 5.7 per cent in December, the bank said last week.

The outlook for loan demand and debt quality in India may have improved this week after Narendra Modi was sworn in as prime minister following the biggest Indian election win in three decades. Morgan Stanley and Citigroup Inc. each raised their economic growth forecasts after Modi's victory.

SBI's net interest margin, a measure of lending profitability, was 3.17 percent at the end of March, compared with DBS's 1.66 percent. HDFC's margin was 4.4 percent, although the bank reported on April 22 its first annual profit growth of less than 30 percent since 1998.