SBI net slides 35% on swollen 2005-06 base

Lower treasury income and higher staff cost have pulled down the April-June quarter net profit of country's largest commercial bank, the State Bank of India, by 34.70 per cent to Rs 798.57 crore against Rs 1,222.83 crore in the corresponding quarter of the previous year.

However, excluding the one-time other income of interest on income tax refund of the April-June quarter of last year, SBI has posted 20.31 per cent growth in net profit.

"We must see the result against the backdrop of over Rs 700 crore one-time income in the first quarter of last year. The interest earned on advances "" core banking activity "" has shown a healthy growth," SBI Chairman OP Bhatt told Business Standard.

After going down sharply to Rs 725.05, the SBI stock today ended at Rs 762.85 on the BSE, gaining 1.19 per cent. Analysts were not disappointed with the worse-than-expected result because after adjusting the one-time income, its net interest margin has risen.

Besides, the bank's yield on advances has also gone up. Union Bank and Federal Bank are two other banks that have posted declines in net profits in first quarter among 22 that have announced their results so far.

SBI's interest earned on advances grew by 37.92 per cent to Rs 5,467.35 crore at the end of June 2006 from Rs 3,964.08 crore.

However, with the income on investments slipping sharply from Rs 3,760.98 crore to Rs 2,940.21 crore, total income dipped to Rs 10,598.75 crore from Rs 10,742.85 crore.

The bank's interest expense remained almost flat but higher operating expenses on account of higher staff cost brought down the operating profit sharply to Rs 2,836.45 crore from Rs 3,439.48 crore.

However, excluding the one-time income of last year, the operating profit is up by 3.99 per cent (against comparable quarter's operating profit of Rs 2,727.58 crore).

The bank's non-interest income grew by 11.80 per cent to Rs 1,762.60 crore from Rs 1,576.56 crore.

Despite healthy growth in the interest income on advances, its net interest income (NII) declined by 8.68 per cent to Rs 3,884.09 crore against Rs 4,253.24 crore in on account of lower treasury income, Bhatt said.

Prima facie, SBI's net interest margin (NIM) dropped to 3.37 per cent from 3.77 per cent a year ago but after adjustment of the one-time income it has risen as post adjustment, the comparable quarter's NIM would have been 3.14 per cent.

The average yield on advances improved to 8.49 per cent from 7.80 per cent. This is a result of declining cost of deposits and the bank's refusal to renew low-yielding advances of Rs 5,000-6,000 crore.

The cost of deposits declined from 4.82 per cent in June 2005 to 4.47 per cent in June 2006 with the share of low cost deposits "" current account and savings deposits "" rising to 42.71 per cent from 38.31 per cent.

SBI's deposit portfolio grew by 7.77 per cent to Rs 3,77,742 crore from Rs 3,50,522 crore (excluding India Millenium Deposits) at end of June 2005.

Its gross advances were up by 21.40 per cent to Rs 2,67,822 crore from Rs 2,20,609 crore a year ago. The retail advances in personal segment rose by Rs 1,905 crore taking the total personal loan portfolio to Rs 62,967 crore.

The gross non-performing assets (NPAs) of SBI declined from to 3.88 per cent from 5.67 per cent while the net NPAs declined from 2.44 per cent to 1.69 per cent.