State Bank of India posts profit but plagued by costly NPAs

Government-owned State Bank of India reported a welcome 15% rise in new profit during the quarter up to December 2011. But this was the only bit of good news for the quarter.

Profits increased to US$660 million from US$573 million while net interest income jumped 27% from a year earlier to US$2.3 billion.

Non-performing assets, however, rose to 2.22% of the total from 1.61% a year earlier. Net Non-Performing Assets (NPAs) stifled investor hopes that the bank’s asset quality had stabilized.

Analysts said troubled airline companies Air India and Kingfisher Airlines were at the core of the unexpected rise in the bank’s NPA. The bank, India’s biggest lender, was downgraded by Moody’s Investors Service in October 2011 because of its thin capital base and worsening asset quality.

The bank is counting on a government capital infusion of US$1.6 billion in the current fiscal year ending March 31, but has said it needs double that amount to maintain its capital adequacy ratio as it grows.

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