In May SBI’s new chairman announced dire results, with lower lending margins, provisions for pensions and extra charges taken against its loans. The hit, including forfeited profits, was some $2.5 billion, equivalent to over a tenth of the bank’s equity. Since its capital ratios are too low to support fast growth, SBI needs to raise more equity. That means persuading the government, which does not want its 59% stake diluted, to stump up: not an easy task.
With rates rising and the economy slowing, some fear more bad debts could emerge at the state banks that lent freely during the downturn. Meanwhile the private banks seem perkier, with their share of loans beginning to rise. ICICI’s chief executive, Chanda Kochhar, says that after two years of building more branches to suck in sticky deposits, the bank is “in a happy situation” and ready to start increasing credit again. Aditya Puri, the boss of HDFC Bank, which remains the darling of investors thanks to its metronomic performance, plans to keep expanding quickly, too. Other financial firms with banking licences, such as Kotak Mahindra, have been shifting towards the lending business and away from capital markets where profitability has fallen, partly thanks to a rush of foreign investment banks into India.
Comments are closed, but trackbacks and pingbacks are open.