The country's largest lender State Bank of India reported a record first-quarter profit on Wednesday and bet on economic activity picking up to contain a spike in bad loans, sending its shares to an all-time high.
Domestic banks have struggled to contain bad loans, especially in their retail portfolios, as the pandemic and resultant lockdowns hit economic activity and limited borrowers' ability to repay loans.
SBI posted a four-fold jump in slippages, or new bad loans, for the first quarter ended June as its home loan and small business segments struggled.
"If economic activity is back on track, our ability to maintain better performance in terms of asset quality will be maintained," Chairman Dinesh Khara told reporters after the results.
The country's deadly COVID-19 second wave has eased from a peak in April and May, allowing businesses to get to work, although restrictions are still in place in some states and analysts worry about a third wave later this year.
The bank said it had recovered Rs 47 billion of the June quarter's Rs 157 billion of slippages in July. It also said it would still aim to keep its current-year slippage ratio at two per cent, compared with the Indian banking industry's overall slippage ratio of 2.5 per cent in fiscal 2021.
Half of SBI's home loan book, typically one of the most insulated segments for most lenders, is to non-salaried people. Khara said the bank aims to bring down its bad loans in the segment to less than one per cent versus 1.39 per cent at June end. He expected its loan book to grow by nine per cent in the current financial year, versus an earlier estimate of 10 per cent.
Credit growth was 5.64 per cent in the first quarter, led by a 16.5 per cent growth in retail advances. Net profit rose 55 per cent to Rs 65.04 billion ($877 million) in the first quarter, versus analysts' estimates for a profit of Rs 61.09 billion. A recovery of Rs 16.92 billion from bankrupt airline Kingfisher also boosted the bottom line.
SBI's shares closed up 2.3 per cent at a record high of Rs 456.95. They have outperformed the Nifty Bank index with a more than 60 per cent jump this year.