SBI Q2 Results

India's largest lender, State Bank of India, on Saturday posted a bigger than expected 2.6 percent fall in quarterly earnings but margins improved as loans yielded higher returns.

SBI, with access to cheap savings bank accounts through its more than 9,000 branches, said operating profit rose 24.7 percent to 24.73 billion rupees in line with the rest of the banking industry.

State-controlled SBI said profit in July-September, its fiscal second quarter, fell to 11.84 billion rupees from 12.15 billion rupees a year earlier, missing a forecast of 11.9 billion rupees in a Reuters poll of 10 analysts.

In the last year second quarter, SBI's net profit was boosted by the 6.5 billion rupees benefit from tax write-backs and absence of tax provisions.

Most banks have posted strong earnings growth in the July-September quarter due to loans growth as individuals borrowed to buy homes and cars, and corporates borrowed to expand capacities.

Banking sector's loans grew 31 percent in the July-September quarter, but the central bank has raised the short term rates 75 basis points this year in three phases to contain inflationary pressures.

The expectation that rates may not be raised further due to the Federal Reserve holding its rates, led to a fall in yields in the last quarter boosting the bond yields which added to banks' profits.

ICICI Bank, SBI's smaller rival, posted a 30 percent rise in July-September earnings, and the New York-listed HDFC Bank, reported a 32 percent rise in net profit earlier this month.

Analysts are expected to revise up their banking sector earnings estimates for the year to March 2007, if the central bank leaves interest rates unchanged during its meeting on Tuesday.

SBI, which employs around 200,000 staff, said its net interest margin grew to 3.32 percent in the September quarter, compared with 3.13 percent in the same period a year ago, as it increased lending rates during the quarter.

Net interest income for the quarter rose 8.07 percent to 38.99 billion rupees, from 36.08 billion rupees a year earlier.

Its net bad loans fell to 1.67 percent in July-September, from 2.27 percent a year earlier.

Shares in SBI rose 41.4 percent in the quarter, outpacing a 17 percent gain in the BSE's main index and a 39 percent gain in the banking sector benchmark.