State Bank of India Profit Beats Analysts' Estimates

State Bank of India,,the nation's biggest by assets, reported a 26 percent increase in fourth- quarter profit, beating analysts' estimates, as record economic growth spurred demand for loans.

Net income climbed to 18.8 billion rupees ($462 million) in the three months ended March 31 from 14.9 billion rupees a year earlier, the state-owned bank said. That beat the 17 billion rupee median estimate of five analysts surveyed by Bloomberg.

State Bank completed its first share sale in a decade in March to boost lending to its 130 million customers, equivalent to the population of Japan. Finance Minister Palaniappan Chidambaram said yesterday interest rates are unlikely to climb from a six-year high, easing concerns that loan growth will slow.

``Banks in India will continue to be a good bet as the economy grows,'' said Mihir Vora, who manages $800 million as the head of equities at HSBC Asset Management (India) Pvt. in Mumbai. ``Banks with good asset-liability balance and credit control will outperform.''

Economic growth that's averaged 8.7 percent annually for four years has spurred companies and individuals to borrow from lenders led by State Bank, which controls more than a fifth of India's banking assets. Chairman Om Prakash Bhatt is required to offer credit to high-risk groups including farmers and artisans and operate branches in less profitable towns and villages.

Fourth-Best Performer

Shares rose 2.7 percent to 1,822.4 rupees in Mumbai trading. The stock was the fourth-best performer on India's equity benchmark Sensitive Index in the past 12 months.

Loans and deposits increased 23.4 percent in the year ended March 31, Bhatt said today. The chairman has previously forecast loan growth to slow this fiscal year as higher interest rates and inflation lead to a reduction in consumer spending.

Credit growth in India slowed to 21.6 percent in the 12 months ended March, from 28.1 percent a year earlier, according to data from the central bank, as consumers deferred purchases of automobiles and homes.

State Bank expects to receive government approval to merge with its seven units this month and plans to complete the consolidation by March, Bhatt said. The bank had already started the process of combining with the State Bank of Saurashtra to grow assets and gain more branches.

``If State of Saurashtra goes through, we will decide on the sequence and pace of remaining associate banks,'' Bhatt said. ``We have a sense that before March 2009, we will be able to merge all of them.''

Subprime Losses

State Bank's focus on extending banking services across the world's second-most populous nation has limited its exposure to the collapse in the U.S. subprime market.

The bank set aside about $10 million to cover mark-to-market losses in the year related to the meltdown in the credit markets, it said today.

More than 100 of the world's biggest banks and securities firms have reported $312 billion in asset writedowns and credit losses since the beginning of 2007, including reserves set aside for bad loans.

The lender needs to bridge a gulf in assets with overseas competitors such as Industrial & Commercial Bank of China Ltd. as regulators consider letting foreign financial-services firms take control of India's private banks.

State Bank's market value of $28 billion is less than a tenth of Industrial & Commercial Bank of China Ltd.'s $306 billion. ICBC is the world's biggest by market value.

To help achieve this, State Bank plans to get about 25 percent of profit from overseas within five years, up from about 11 percent now, the bank said.