The nation's largest lender recorded a net profit of '2,810 crore for the quarter against '2,501 crore a year ago. Analysts polled by Bloomberg were expecting profit to remain flat at '2,520 crore.

The better-than-expected net profit was, however, marred by the high level of stressed assets and provisioning to keep them under check. The bank's total bad debts as a percentage of its total advances, or gross non-performing assets (NPAs) ratio, stood at 4.19% against 3.35% a year ago. After setting aside money, the net NPA ratio was brought down to 2.04% against 1.7% in the year-ago quarter. This level of both gross and net NPAs was last seen in September 2005.

SBI shares dropped 6.76% to close at '1,862.50, while the Bankex, BSE's banking index, dropped 2.62%. The exchange's benchmark index, the Sensex, lost 1.18%.

The bank made a total provision of '4,664 crore in the quarter, higher by 20.96% from its year-ago quarter level of '3,856 crore. Among this, loan loss provision alone rose by 35.09% to '2,921 crore in the quarter. But on a sequential basis, total provision actually fell 17% and loan loss provision increased by just 5%. Click to Apply for PNB Home Loan and BOM Home Loan

SBI chairman Pratip Chaudhuri attributed the rise in NPAs to the bank's decision against writing off most bad debts like it used to in the past.

"Because write-off means it goes out of the mind, we decided to keep that in our book and continue with our efforts to recover them," said Chaudhuri. According to him, in the year-ago quarter, the bank had written off around '660 crore of bad debts, but in the September quarter, it only wrote off '60 crore.

The bank saw about '8,000 crore of its assets turn bad this quarter. Net of recovery, the number stood at '6,178 crore.

"On the back of continued stress in corporate, SME (small and medium enterprises) and agri sectors, annualized slippage ratio remained elevated at 3.68%," SBI said in a statement.

The bank saw NPAs rising from largely export-oriented sectors, iron and steel, agro-based business, and government-sponsored schemes. The retail loans did not see much stress in the quarter, the bank's management said.

"We still see pressure on the asset quality, but we have provided adequately..., but broadly there is stress," Chaudhuri said.

He also warned that the whole banking industry could see high slippages in the coming quarters.

"In the NPA scene what SBI experiences, other banks experience tomorrow. It hits them with a lag," he said.