State Bank of India reported a better-than-expected 25 per cent increase in quarterly profit …

State Bank of India, India’s largest lender and a bellwether for the economy, on Friday beat market expectations with a 25% year-on-year rise in net profit to Rs 3,879 crore during the quarter, against Rs 3,100 crore a year ago, led by higher advances and a fall in bad loans.

Analysts had expected SBI to report a net profit of Rs 3,639 crore.

Net interest income grew 7.3% to Rs 14,253 crore during the quarter from Rs 13,275 crore last year.

Gross bad loans as a percentage of total loans dropped to 4.15 per cent from 4.29 per cent in the June quarter. Provisions for bad loans dropped almost 7 per cent.

($1 = Rs 65.8000 )

Shares of the state-run bank rose nearly 4%, the most in almost three months, to close at Rs 243.25 Friday on the Bombay Stock Exchange, where the benchmark fell 0.2%. Net profit for the three months ended on September 30 rose to Rs 3,879 crore from Rs 3,100 crore. Average analyst estimate was Rs 3,600 crore.

Net interest income – the difference between interests earned and paid out, and the equivalent of revenue for banks – rose 7.4% from a year earlier to Rs 14,235 crore. In what is seen as a clear signal of the economy becoming healthier, the bank reported a 21.7% increase in corporate loans from a year earlier. Overall, SBI’s loan book expanded 10.3%, exceeding the industry average of 9%, to Rs 13.7 lakh crore.

Interest income on loans, though, rose only 4% to Rs 28,982 crore. The bank attributed this to a 0.3 percentage point reduction in its base lending rate between April and June this year. The bank is targeting 14% growth in loans in the fiscal year ending on March 31, 2016. “Economy is on the mend,” Chairman Arundhati Bhattacharya said. “We are getting to the bottom of the pile (of bad loans). Along with renewables (of loans), we see a large number of road projects coming up, power projects, too, see some traction.” The bank reported strong returns from overseas treasury operations, or investment in bonds and currencies, with it repatriating close to Rs 485 crore of profit in the past quarter. This was added to a Rs 1,000 crore gain from investments in Indian government bonds.

State-owned banks have been grappling with their worst bad debt burden in a decade, with bad loans rising mainly due to stalled projects. Sectors such as steel and power are seeing the maximum number of loans turning sour.

“I think we are beginning to see the end of this entire cycle… Today, I am much more confident about the quality of assets going forward,” SBI chairman Arundhati Bhattacharya said.

“State-run banks that have slowed down lending are seeing improvement in asset quality: you have to be conservative in a bad environment,” said Vaibhav Agarwal, vice-president, research, Angel Broking.

SBI’ shares rose 3.86% on the BSE on Friday.

“We may begin to see an end of the bad loan cycle. There are still one or two large accounts that may hit (us) temporarily,” said Bhattacharya. Deposits grew nearly 11% from a year earlier – close to the industry trend – to Rs 16.34 lakh crore, in a quarter when it had lowered deposit rates.

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