State Bank of India, the country's top lender, posted an unexpected plunge in quarterly net profit on Tuesday and lagged estimates by a massive margin, slammed by higher provisions for bad loans, operating costs and taxes.
Shares in State Bank fell as much as 6.4 percent to their lowest level in nearly 10 months after the results, compared with a roughly 1 percent fall in the broader market.
State Bank said provisions for bad loans in the fiscal fourth quarter rose 49 percent to 32.64 billion rupees from 21.87 billion rupees a year ago, while operating costs increased 67.94 billion rupees from 60.36 billion rupees.
Tax expenses in the quarter also nearly doubled to 19 billion rupees.
The bank's net non-performing assets rose to 123.5 billion rupees at March-end from 108.7 billion a year ago.
The state-run bank withdrew a special home loan scheme in May, in response to concerns raised by the RBI.
The scheme, also known as a teaser loan, had come under the central bank's scanner due to worries that they could significantly raise banks' bad loans.
State Bank had launched the special home loan schemes, following the global economic downturn, to boost loan demand in Asia's third-largest economy. But many anaylsts had expressed concern about it creating more bad loans for the bank.
Credit growth at Indian banks is set to slow in this fiscal year, following a series of interest rate increases by the central bank to tame inflation that rose an annual 8.66 percent in April, higher than expected.
The central bank raised rates by a hefty 50 basis points earlier this month and its hawkish statement has prompted economists to raise their forecasts for interest rates this year.
Most economists in recent Reuters poll expect the central bank to raise rates by at least another 75 basis points in 2011. The central bank's next review is June 16.
Bank loans in India rose 21.9 percent on the year as of April 22, the central bank's latest data showed, up from 17.1 percent in the same period last year, but slowing from a 24.4 percent rise on year as of Dec. 31 last year.
State Bank Chairman Pratip Chaudhuri told Reuters last week that surging interest rates would crimp loan growth this fiscal year to 17-19 percent, from a January target of 20-22 percent.
State Bank and its domestic rivals, including ICICI Bank and Kotak Mahindra Bank, raised their benchmark lending rates earlier this month following the rate hike by the central bank.
State Bank, which along with its associates controls about a quarter of Indian bank loans and deposits, posted a net profit of 209 million rupees ($4.6 million) in the fourth quarter, versus 18.67 billion rupees a year ago.
Net interest income rose nearly 20 percent to 80.58 billion rupees.
A Reuters poll of brokerages had forecast a profit of 30.33 billion rupees on net interest income of 91.09 billion rupees.
Shares of State Bank, valued at $37 billion, have fallen 7 percent this year as on Monday, compared with a 10 percent drop in the Mumbai market index.