Attempts to lower NPAs and an aggressive retail and technology push make State Bank of India a promising buy
Predictability can, arguably, be described as one of the hallmarks of Indian state-run banks. The same could also be said for the annual results of State Bank of India, the country's largest public-sector bank: net profit for financial year 2002 rose 52 per cent to Rs 2,432 crore, matching analyst expectations.
Most analysts had correctly figured that expenses would cause lesser strain on profits this year. Last year, profits had been weighed down by two extraordinary expenses. One involved costs associated with raising special non-resident Indian deposits, called India Millennium Deposits. Another related to expenses of what turned out to be the largest employee separation scheme in the history of Indian banking.
Shouldering a charge of almost Rs 2271 crore (to be amortised over five years), the scheme pared nearly 10 per cent of SBI's over two lakh workforce. This time round, there were no expenses associated with the IMD, and VRS charges amounted to just Rs 354 crore, compared with Rs 853 crore a year ago.
While total income (interest and fee-based income) for 2002 year rose 13 per cent to Rs 33,985 crore, operating expenditure fell 7.2 per cent.
Chairman Janki Ballabh predicts modest growth for the year ahead. He expects SBI's loan portfolio to grow by 16 per cent, and non-interest income to rise by 20 per cent. If all goes according to plan, net profit should gain 25 per cent in fiscal 2003.
The bank isn't betting only on the lifting of the dark clouds surrounding the economy to get there; rather, it's hoping to ride the retail lending boom. Retail consumers have spiritedly bucked the downtrend as they continue to lap up more loans. Home loan borrowers, especially, can't seem to get enough: the housing loan market is widely tipped to grow by 40 per cent in the next few years.
SBI is already experiencing the joys of home loans: last year, advances nearly doubled to Rs 5,811 crore. This year, it's setting its sights much higher. It hopes to add another Rs 7,000 crore to its retail loan book, with around Rs 4,500 crore coming in from home loans alone.
Aiding the cause will be lower cost of deposits -- a crucial component in determining overall funds cost -- which fell to 7.07 per cent from 7.62 per cent. Net NPAs to net advances were also sliced to 5.63 per cent from 6.01 per cent a year ago.
Nevertheless, there are some worrying bits. For one, unlike other banks, it wasn't treasury income that provided the boost to profits, it was interest income
