Top 6 Indian banks' net income increased 4.2% to 98.76b Indian rupees

Most banks struggled to contain bad debt.

Combined earnings at the six largest Indian banks edged up year over year in the three months through Dec. 31, 2014, while most of them struggled to contain bad debt.

According to a research note from SNL Financial, the banks' aggregate net income attributable to parent companies grew 4.2% to 98.76 billion Indian rupees during the fiscal third quarter from the same period of 2013.

In profit growth, the largest bank, State Bank of India, led the group, reporting a 30.2% jump in net income. The company is also alone among the six in improving asset quality in the 12 months to Dec. 31, 2014. The ratio of the bank's unconsolidated nonperforming loans to total assets dropped 64 basis points to 3.26% as of the end of 2014 from 3.90% a year earlier.

The NPL ratios of the other five banks all rose during the one-year period. As of Dec. 31, 2014, New Delhi-based Punjab National Bank had the highest NPL ratio of 3.86% in the group, while HDFC Bank Ltd. continued to have the best asset quality with an NPL ratio of 0.65%, which inched up 1 basis point from the end of 2013.

Here's more from SNL Financial:

HDFC Bank and ICICI Bank Ltd. followed State Bank of India in reporting the largest quarterly profit increases. Net income at HDFC Bank grew 20.2% year over year in the fiscal third quarter, while ICICI Bank posted a 14.1% gain.

The two private sector banks stand out because of their profitability. HDFC Bank and ICICI Bank reported the highest net interest margins among the six banks of 4.55% and 3.37%, respectively, for the three months ended Dec. 31. Their ROAA for the period — 2.14% for HDFC Bank and 1.88% for ICICI Bank — are also the best in the group.

The only two banks that reported lower profit are Bank of Baroda and Bank of India, which saw drops of 68.1% and 70.4% in net income, respectively. The banks were hit by asset write-downs, which shot up to 12.26 billion rupees at the end of 2014 from 7.12 billion rupees a year earlier at Bank of Baroda and to 14.88 billion rupees from 11.78 billion rupees at Bank of India.

Amid growing bad loans, Indian banks are under pressure to improve their capital metrics. The government is looking to inject capital into some state-owned banks in the 2015-2016 fiscal year. Unlike before, profitability will be a key factor in a decision on whether a bank will receive capital support, and Moody's said the change is credit negative for weaker lenders.

Among private sector banks, HDFC Bank recently sold new shares to domestic and foreign investors.