State Bank of India posted Q2 net profit of Rs.2810 crore on higher net interest income (NII), up 12.34% from Rs.2501 crore reported during the quarter ended September 2010. This sparkling second quarter performance was tad above the market expectations. The NII for the quarter stood at Rs.10422 crore, up 28% from Rs.8115 crore a year ago.

However, India’s largest lender failed to enthuse markets as its gross non-performing assets stood at Rs.33946 crore, surged to 4.19% in the July-September quarter of FY12, as against 3.35% during a year ago period. SBI shares slumped by 5% on the BSE Sensex on realizing deteriorating asset quality of the bank.

SBI

Recently, Moody’s had downgraded the stand-alone rating of State Bank of India to D+ from C- on the back of its modest capital, weakening asset quality and lower baseline credit assessment of Baa3 level.

The nightmare for the state-run lender began way back in the fourth quarter ended March 2011, when SBI’s net profit eroded to Rs.20.88 crore led by higher provisioning against bad loans, up tick in employee costs and higher tax outgo. In the Q2 FY12, SBI made provision of Rs.3386 crore.

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