Domestic banks have struggled to contain bad loans, especially in their retail portfolios, as the pandemic and resultant lockdowns hit economic activity and limited borrowers' ability to repay loans.
SBI posted a four-fold jump in slippages, or new bad loans, for the first quarter ended June as its home loan and small business segments struggled.
"If economic activity is back on track, our ability to maintain better performance in terms of asset quality will be maintained," Chairman Dinesh Khara told reporters after the results.
The country's deadly COVID-19 second wave has eased from a peak in April and May, allowing businesses to get to work, although restrictions are still in place in some states and analysts worry about a third wave later this year.
The bank said it had recovered 47 billion rupees of the June quarter's 157 billion rupees of slippages in July. It also said it would still aim to keep its current-year slippage ratio at 2%, compared with the Indian banking industry's overall slippage ratio of 2.5% in fiscal 2021.
Half of SBI's home loan book, typically one of the most insulated segments for most lenders, is to non-salaried people. Khara said the bank aims to bring down its bad loans in the segment to less than 1% versus 1.39% at June end.
He expected its loan book to grow by 9% in the current financial year, versus an earlier estimate of 10%.
Credit growth was 5.64% in the first quarter, led by a 16.5% growth in retail advances.
Net profit rose 55% to 65.04 billion rupees ($877 million) in the first quarter, versus analysts' estimates for a profit of 61.09 billion rupees.
A recovery of 16.92 billion rupees from bankrupt airline Kingfisher also boosted the bottom line.
SBI's shares closed up 2.3% at a record high of 456.95 rupees. They have outperformed the Nifty Bank index with a more than 60% jump this year.
($1 = 74.1800 Indian rupees)
(Reporting by Chris Thomas in Bengaluru and Nupur Anand in Mumbai; Editing by Sriraj Kalluvila)
By Chris Thomas and Nupur Anand