State Bank of India (SBI) delivered a smaller-than-expected increase in bad loans in the third quarter, sending its shares 8 percent higher, even as the lender said on Friday it was too soon to say the worst was over.
Shares in India's biggest lender by assets notched up their strongest gain in almost nine months, after it reported gross bad loans rose to 4.9 percent of total loans -- only a marginal uptick from 4.89 percent in the previous quarter.
The market had expected a much stronger increase, with traders quoting expectations of closer to 5.9 percent earlier in the week, after other leading government-owned banks saw a jump in deteriorating loans.
"We are confident that we'll be able to hold the book," SBI Chairwoman Arundhati Bhattacharya said, referring to the level of bad loans on its books.
She said the bank was improving monitoring systems and risk-mitigating products that would help it show "better" numbers.
"Have I seen the worst already? I hope so," Bhattacharya said. "But let's just wait it out for a quarter or two."
Bhattacharya, who was named in late 2013 to head the 208-year old bank, has stepped up monitoring, upgraded systems and software to tackle bad loans that have hurt Indian lenders, especially the state-owned banks. More than a tenth of the loans in India are classified as stressed.
While the surge in bad loans in the past two fiscal years has been mainly attributed to a slowdown in the economy, some also blame a lack of due diligence.
Economic growth is expected to pick up this fiscal year and next, but bankers say an improvement in assets will lag.
SBI is planning to raise as much as 150 billion rupees ($2.4 billion) by selling shares in what will be the biggest public share sale locally by a lender. It has selected eight investment banks to advise on the sale.
Bhattacharya said the bank had yet to finalise the quantum and a timeline for the sale.
SBI's net profit for the quarter rose 30 percent to 29.1 billion rupees ($468.4 million), lagging analysts' estimates of 32.74 billion rupees as provisions increased. It reported domestic net interest margins of 3.5 percent for the three months to December, adding it expected those to hold.
Shares in SBI closed 8 percent higher in a Mumbai market that ended up 1.1 percent up.
($1 = 62.1250 Indian rupees)