State Bank of India fourth quarter profit down 99%

The huge drop resulted from tax expenses and provisions, which surged as it ended “teaser loan” program that charged borrowers below-market rates in the initial years.

State Bank of India posted a 99% drop in fourth-quarter net profit, as provisions and tax expenses surged, warning it would continue to set aside substantial funds, mainly for potential bad loans, in the next couple of quarters.

"This is a quarter we would like to forget," SBI Chairman Pratip Chaudhury said at a news conference.

The poor results don't necessarily spell trouble for all Indian lenders. SBI, India's largest bank by assets, was particularly hurt by a rise in provisions to 41.57 billion rupees ($921 million) from 23.49 billion rupees ($522.9 million), including 32.64 billion rupees ($726.55 million) set aside against possible bad loans. Tax expenses also soared to 19.02 billion rupees ($423.45 million) from 9.78 billion rupees ($217.74 million).

Rivals ICICI Bank Ltd. and HDFC Bank Ltd. had much stronger quarters because they didn't have to set aside such large amounts against possible bad loans. Analysts say that they expect bad loans will likely remain steady in coming quarters for most banks.

SBI's provisions jumped after it recently ended a highly popular mortgage program that involved what the central bank called "teaser loans," which charged borrowers below-market rates in the initial years, before rising later.

The program was launched after the global economic crisis hit in late 2008, crimping demand for housing and other loans. State-run SBI was flooded with cash as investors sought to park their funds with the bank, perceiving it to have an implicit guarantee from the government, making the bank eager to lend.

View the full story in The Wall Street Journal.