(Bloomberg) -- Shares of State Bank of India fell after the country’s largest lender reported a contraction in margins and higher provisions for bad loans. The bank forecast lower-than-expected deposit growth for this fiscal year.
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Net interest margins narrowed 16 basis points in the fiscal second quarter to 3.27% from a year earlier, according to a statement on Friday. There was also a sharp rise in loan-loss provisions, which doubled from a year ago, the statement showed.
The bank expects deposit growth of about 10% to 11% this fiscal year, down from a previous estimate of 12% to 13%, Chairman Challa Sreenivasulu Setty told reporters in Mumbai.
The outlook overshadowed the 28% increase in net income to 183.3 billion rupees ($2.2 billion) in the three months through Sept. 30, topping analysts’ estimates of 160 billion rupees in a Bloomberg survey.
SBI shares slumped 1.9%, the most in more than two weeks. The stock has risen 31% this year.
The bank is one of the last large Indian lenders to report earnings for the September quarter, a period when its peers posted higher gross non-performing assets, which led to lower margins and increased credit costs.
Lenders such as Axis Bank Ltd. announced plans to slow disbursements in their unsecured portfolios while shadow lenders such as Bajaj Finance Ltd. said they would strengthen their underwriting standards.
The rise in bad loans on credit card, personal loan and microfinance portfolios came nearly a year after India’s banking regulator tightened rules for unsecured loans, trying to get ahead of any blow-ups.
For State Bank of India, its loans to businesses and individuals grew by a low single-digit percentage from the previous quarter, compared with a double-digit increase a year ago.
Setty said credit growth is on track to meet earlier guidance of 14% to 16% for this fiscal year. The bank has “galvanized” its 22,000 branches to boost deposits, which grew 9.1% in the 12 months to Sept. 30.
Deposits provided the bank with “incremental support for credit growth” and the push was to ensure its market share was protected, Setty said.
The bank also plans to introduce specialized banking products for women and senior citizens to build deeper relationships, Setty said.
(Updates with details on deposit growth from first paragraph)
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