The cost of insuring the bonds of State Bank of India is surging before the
nation’s largest lender reports quarterly earnings on Thursday amid concern
over worsening asset quality.
Credit-default swaps protecting the bank’s debt against non-payment
for five years jumped to 202 basis points on Tuesday, the highest since
August 2014, according to prices data provider CMA. The contracts,
considered a proxy for the sovereign, have climbed 20 basis points in their
biggest two-day advance since Jan. 21.
Earnings at banks are under pressure as they boost provisions for
stressed assets to meet a March 2017 deadline set by the Reserve Bank of
India to bolster lenders’ balance sheets.
The central bank is striving to pare the ratio of restructured and soured
loans to total advances from a 14-year high and reverse a slowdown in
lending. ICICI Bank Ltd., State Bank’s largest private-sector rival, last
month posted its slowest quarterly profit growth in six years amid rising
bad debts and a threefold increase in provisions.
”Investors are worried about a possible surge in the bad loan
provisions at SBI,” said Hatim Broachwala, Mumbai-based banking analyst at
Nirmal Bang Institutional Equities Ltd. “A sharp deterioration in asset
quality at state-run banks that have reported earnings so far has added to
this concern.”
Sovereign Bonds
Funds set aside for bad loans at Punjab National Bank doubled in the
quarter ended Dec. 31 over the previous three months, the New Delhi-based
lender said in a filing Tuesday. Its soured debt ratio also widened.
Mumbai-based Dena Bank Ltd.
posted a threefold increase in provisions, swinging to a quarterly loss.
SBI will report a net profit of 33 billion rupees ($486 million), according
to the mean estimate in a Bloomberg survey.
The lender’s shares fell 2 percent to 163.65 rupees in a second day of
declines in Mumbai on Wednesday, taking their 2016 loss to 27 percent.
That’s about three times the drop in the nation’s benchmark S&P BSE Sensex
stock index.
Indian sovereign bonds rose Wednesday, driving the yield on notes due
May 2025 two basis points lower to 7.82 percent, according to prices from
the central bank’s trading system. The rupee weakened 0.1 percent to 67.95
per dollar.
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