State Bank of India, the country's top lender, beat estimates with a 12.4 per cent rise in quarterly net profit but a rise in non-performing assets disappointed investors and its stock was down 5 per cent after the results.
Worries about worsening asset quality in Asia's third-largest economy prompted Moody's Investors Service earlier on Wednesday to cut its outlook on the Indian banking sector to "negative" from "stable."
Net non-performing assets at SBI increased to 2.04 per cent of total assets at the end of September from 1.7 per cent a year earlier, spooking investors.
"It is the increase in NPAs (non-performing assets) that hit the stocks today. It is a concern for the entire sector," said Arun Khurana, fund manager at UTI Banking Fund.
"However, going forward we expect pain from legacy NPAs to subside," he added.
SBI reported net profit of Rs 28.1 billion ($564 million) for its fiscal second quarter ended September 30, compared with Rs 25.01 billion a year earlier.
A Reuters poll had projected net profit of Rs 24.3 billion on a standalone basis.
Net interest income rose about 28 per cent on the year to Rs 104.2 billion for the three months.
Rivals ICICI Bank and HDFC Bank had earlier posted forecast-beating net profit increases of 22 per cent and 32 per cent respectively.