State Bank of India (SBI) reported a 13.6 per cent decline in quarterly net profits yesterday, as bad loans weigh on Indian banks amid slowing economic growth in the country.
Net profits at India's largest lender fell to 32.4 billion rupees (Dh1.95bn) in the quarter between April and June, down from 37.5bn in the same period last year.
Public sector banks in particular have been hit by non-performing assets (NPAs) after India's economic growth slowed to a decade low last year and because of their exposure to stalled projects in areas including mining and infrastructure.
Gross non-performing assets for SBI rose to 5.56 per cent of total loans in the quarter compared to 4.99 per cent in the same months last year.
Other major public sector banks, including Bank of Baroda and Punjab National Bank have reported increases in non-performing assets.
"It's never a one-way street," said Pratip Chaudhuri, the chairman of SBI. "It's a continuous battle and we are doing our best to fight. There is a great realisation across the country that NPAs are not the problems of banks alone. These stalled projects are a national problem. With this greater realisation ... we think things should get better. In the overall context of demand moderating for many industries, in fact whatever is being possibly done right at one end is coming to a knot at the other."
Sonam Udasi, the senior vice president and head of research at Idbi Capital Markets, said that subdued growth in India was likely to remain a challenge for banks in the coming quarters.
"As growth started tapering off, a lot of corporates starting taking the pressure, tremendous pressure," said Mr Udasi. "The feeling until about three or six months back was that things would start to even out when growth starts picking up. If you speak to most bankers in India, they will tell you that while slippages are an ongoing concern because of the economic slowdown, growth is not picking up.
That is what is the biggest problem because your top line doesn't grow."
He explained that sectors including power, which public sector banks had lent a lot of capital to, were typically highly leveraged.
Another issue was the weakness of the rupee, which is preventing the central bank from cutting rates to make borrowing costs cheaper and help to stimulate economic growth, Mr Udasi added.
SBI is among the lenders that have exposure to Kingfisher Airlines, the fleet of which has been grounded since last October.
Mr Chaudhuri said that SBI had total exposure of about 16bn rupees to the airline controlled by Vijay Mallya and the bank had already managed to recover about 2bn rupees through sales of shares. SBI has the largest exposure out of the consortium of lenders to the airline.
As the process of recovering the debts continues, lenders took possession of Kingfisher Airlines' headquarters in the suburbs of Mumbai on Saturday, according to a report in the Indian business newspaper Mint, citing anonymous bankers.