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The logo of State Bank of India is pictured next to its headquarters in Mumbai, India, March 14, 2016.Reuters file

Shares in State Bank of India slumped on Monday after the country's biggest lender by assets reported increase in bad loans after a surprise quarterly loss.

The lender said an audit by the Reserve Bank of India (RBI) showed bad loans was about Rs 23,239 crore ($3.6 billion) higher than what the state-run lender reported for the end of March 2017.

Mirroring the concerns, State Bank of India stock fell as much as 3.8 percent to Rs 285 on the Bombay Stock Exchange. About 28 million shares changed hands in the first two hours of trading compared to a 30-day average of 23 million.

SBI was the only loser on the 30-share Sensex, which was up 0.67 percent.

Indian banking system is plagued with bad loans. The non-performing assets accumulated by lenders are higher than those of banks in most major economies, including the U.S., UK, China, and Japan.

In fact, India ranks fifth out of 39 major world economies plagued by bad loans, according to a report by Care Ratings last year.

"The shares (of SBI) could potentially tank 7 percent this month, given the "bearish overhang", according to derivatives expert Rajesh Palviya of Axis Securities.

Another analyst Chandan Taparia of Motilal Oswal expects the correction to persist for another few sessions.

SBI on Friday reported a net loss of Rs2,416 crore for the fiscal third quarter after making a loan loss provision of Rs17,760 crore, as compared with Rs9,662 crore a year ago.

Provision coverage ratio improved to 65.92 percent at the end of December, from 58.96 percent a year ago.