Mumbai: The shares of State Bank of India (SBI) vaulted over six per cent on Friday despite reporting a 66 per cent drop in net profits for the quarter ended March 2016 on account of the over two-fold increase in provisioning for bad loans.
However, market participants believe that SBI is unlikely to see further deterioration in asset quality. The steep rally in SBI helped the markets to extend their gains for the third consecutive day post their biggest weekly gains in three months.
SBI reported a net profit of Rs 1,263.8 crore in the fourth quarter as compared to Rs 3,742.02 crore reported during yearago period. However, the bank’s provision towa-rds bad loans increased to Rs 12,139.17 crore during the March quarter as against Rs 4,985.83 crore in the yearago period.
“Asset quality (gross non performing assets) came below expectation. The provisions were also higher leading to lower than estimated earnings. However, the bank has a watch list of only one per cent of the outstanding loan, which signaled that the potential bad loans are under control providing relief to market participants. While the stock has rallied sharply on Friday, we see potential for further re-rating as investors factor in a far better than peer performance,” said Ravi Shenoy, vice-president, Motilal Oswal Securities.
