SBI Q2 profit lags estimates on rise in bad loan provision

MUMBAI (Reuters) - State Bank of India (SBI), the nation's top lender by assets, reported its second straight quarter of profit on Friday after more than a year in the red, though profit lagged analyst estimates as provisions for bad loans increased.

SBI and peers such as ICICI Bank Ltd have suffered a surge in bad loans as economic expansion slowed to less than 5 percent in the past two fiscal years - the worst spell of sluggish growth in quarter of a century.

Signs of revival in economic indicators have made banks optimistic, though a high level of bad loans is widely expected to persist for the next few quarters while credit growth continues to hover near its slowest in a decade.

SBI, which accounts for about a quarter of loans and deposits in India, reported a 52 percent rise in provisions for bad loans in July-September at 40.28 billion rupees ($653.47 million).

That led to net profit of 31 billion rupees, an increase of 30.5 percent from the same period a year earlier but short of the 32.54 billion rupees average estimate of analysts in a Reuters poll.

More than two dozen state banks account for over 70 percent of advances - and also the bulk of the bad loans. Analysts estimate banks will need as much as $110 billion over the next four years to comply with global rules for bank reserves, designed to prevent bad loans crippling the banking system.

SBI's net non-performing loans as a percentage of advances was 2.73 percent in the fiscal second quarter, from 2.66 percent in the previous three months. Interest earned in the quarter rose 10 percent from a year earlier to 372.63 billion rupees.

Shares of SBI were 2.8 percent higher after the earnings announcement, versus a 0.4 percent rise in BSE Sensex.

($1 = 61.6400 rupee)

(Reporting by Devidutta Tripathy; Additional reporting by Tripti Kalro in BANGALORE; Writing by Sumeet Chatterjee; Editing by Christopher Cushing)