State Bank of India expects to grow its income riding on a strong credit off-take and economic growth, after market losses dragged on the lender's income in the fiscal first quarter ended June 30.
India's biggest lender by assets reported that its gross advances rose 14.93% year over year to 29.006 trillion Indian rupees in the fiscal first quarter as domestic economic activity continues to recover from the COVID-19 pandemic.
State Bank of India has nearly 5 trillion rupees in term loans and underutilized working capital credit lines to its customers and a pipeline of almost 1.2 trillion rupees, Chairman Dinesh Khara said at a post-earnings conference call Aug. 6. "We should be able to sustain it in subsequent months," Khara said in response to a question on whether the credit growth would be sustained for the rest of 2022.
India is expected to remain one of the fastest-growing economies in the world, supported by a normal monsoon season that would spur rural demand and increased spending by both the private sector and the government. The nation's central bank raised benchmark interest rates again on Aug. 5 and noted that banks' credit growth has accelerated to 14% as of July 15, compared with 5.4% in the prior-year period.
Though India faces the drag from global events, "domestic economic activity is exhibiting signs of broadening," Reserve Bank of India Governor Shaktikanta Das said. The Reserve Bank of India expects the economy to grow 7.2% in the year to March 31, 2023, only slightly slower than the estimated 8.7% expansion in the previous fiscal year when it emerged from the pandemic.
Mark-to-market drag
State Bank of India reported a 6.7% year-over-year decline in stand-alone net profit for the fiscal first quarter to 60.68 billion rupees, affected mainly by mark-to-market losses on its investments. The bank's net interest income for the quarter rose 12.87% to 311.96 billion rupees, while its net interest margin for the quarter rose year over year to 3.23% from 3.15%. Its gross nonperforming assets ratio stood at 3.91% as of June 30, down from 5.32% in the prior year period.
"SBI has come a long way and is now far better placed in terms of delivering sustained profitable growth," Anand Dama, senior research analyst at Emkay Global said in an Aug. 7 research note. The bank's credit growth was mainly led by strong growth in its low-margin overseas book, Dama added.
According to an industry survey by the central bank, capacity utilization in the manufacturing sector in the quarter ended March 31 was 75.3%, higher than its long-term average of 73.7%. That signals the need for fresh investment activity in additional capacity creation, the central bank governor said.
The stronger capacity utilization "might increase the credit demand and bank loan books further," said Tusharika Aggarwal, Research Analyst, Asia-Pacific Dividend Forecasting at S&P Global Market Intelligence.
As of Aug. 5, US$1 was equivalent to 79.39 Indian rupees.
