MUMBAI: State Bank of India’s ( SBI ) quarterly earnings plunged 35% during July-September as provisions for bad loans eroded treasury gains and business operations remained weak with net interest income climbing a marginal 1.3%.Net profit fell to Rs 2,538 crore in the September quarter, from Rs 3,879 crore a year ago. Apoll of analysts’ forecasts by Bloomberg had pegged net profit at Rs 2,590 crore. SBI chairman Arundhati Bhattacharya said bad loans would continue to mar prospects. She said the move to eradicate black money from the economy was a blow to an already slow economic recovery, although it would lead to future gains.“As soon as corporate stress recedes, you will start seeing the strength of our balance sheet,” said Bhatacharya. Giving an outlook on rates, she said, “We expect cost of funds to come down due to demonetisation.” SBI’s low cost deposits rose Rs 18,000 crore in a single day, versus Rs 8,000 crore in money. At a consolidated level, the bank reported loss of Rs 116 crore — mainly on account of losses made by associates as they aligned their loan book with the bank.SBI loan book stood at Rs 14.81 lakh crore, up 8% mainly driven by retail loan book while deposits rose to Rs 18.56 lakh crore driven by rise in saving and current account. “There are too many uncertain things about third quarter so it is hard to give a guidance. The corporate loan book is expected to grow at 10-11% while deposits could grow by 15% due to demonetisation,” said Bhattacharya.Provisioning for bad loans nearly doubled to Rs 7,670 crores as gross bad loans climbed to a record of Rs 1.05 lakh crores which is about 7.1% of its total advances.Net bad loans, after providing for potential losses from gross defaults, was at 4.2% of total loans. Slippages — when an account turns nonperforming — stood at Rs 10,341 crore from Rs 5,875 crore a year ago.The bank made best use of the bond market rally as it income from treasury rose to Rs 2,291crore, up 53%. Further, the bank received Rs 796 crore refunds of service tax that they had paid to the government, which gave a boost to their income.Net interest income, the difference between what it paid for funds and what it earned from lending, gained a paltry 1.3% to Rs 14,437 crore. “This is due to pull back in interest income due to reduction in interest rates and rise bad loans,” said Anshula Kant, CFO of SBI.But its corporate lending remained ugly with it plunging into a pre-tax loss of Rs 3,277 crore, from a profit of Rs 683 crore a year earlier. State Bank which has been increasing its focus on increasing its retail lending including to purchase of cars and homes, saw its fee income jump 37% to Rs 4,317 crore.