The Hindu Business Line : SBBJ working on turnaround plan

Chennai, Nov 16 Public sector banks saw a slowing down of profits in the second quarter. Profit growth was at about 23 per cent compared to over 47 per cent in the first quarter. And a few banks faced difficulty in this quarter with profits actually dipping compared to last year. State Bank of Bikaner and Jaipur was one of them.

Mr M. Ramasamy, the bank’s chief general manager and its officiating Managing Director, answered a couple of questions on the bank’s performance in this quarter. He explains the reasons for the dip and the steps the bank is taking to put it back on the profit growth path.

The performance of State Bank of Bikaner and Jaipur in the second quarter seemed to fall short when compared to other banks. Why did this happen?

During the half-year ended September 30, 2007, the bank’s interest income increased 35 per cent to Rs 1,520.53 crore from Rs 1,126.51 crore in the corresponding period last year. However, “other income” declined by 23.1 per cent from Rs 177.16 crore to Rs 136.30 crore . This was predominantly on account of a decline in Government Commission income since the bank had received one-time arrears of Government Commission amounting to Rs 30.75 crore during the first half of last financial year.

Profit on Sale of Investments was also lower by 10.7 per cent due to general hardening of bond yields. On expenditure front, interest expenditure increased by 59.2 per cent mainly due to sharp rise in interest rates on deposits (which have since been reduced). Although, the bank was able to successfully contain operating expenditure growth at 1.4 per cent, lower growth in other income and higher growth in interest expenditure led to lower net profit growth at 5.0 per cent from Rs 125.39 crore in the first half of last fiscal to Rs 131.70 crore during first half of FY08.

The bank’s other income showed a slight dip while net interest income grew only by 4 per cent. Does this imply that the bank was not able to pass on its increase in costs to its customers?

The reasons for decline in “other income” have been explained already. As regards net interest income (NII), there was a growth of 6.2 per cent to Rs 531.33 crore (Rs 500.44 crore) during H1FY08 (4.4 per cent growth during the second quarter of this fiscal). The major reason was that, as a conscious strategy, the bank decided to replace high cost volatile bulk deposits by stable and long-term personal segment deposits.

With special efforts, the personal segment deposits recorded a growth of Rs 1,454 crore, which helped in repayment of high cost bulk deposits amounting to more than Rs 1,000 crore.

In order to attract new customers in the market flooded with special schemes offering higher interest rates, the bank also increased deposit rates to as much as 9.5 per cent, which were subsequently reduced. Though the bank was able to pass on most of the higher cost to its borrowers, there was a marginal squeeze in interest spread from 4.16 per cent in March 2007 to 4.11 per cent in September 2007, which still remains amongst the best in the banking industry in India.

What is the proportion of your low cost deposits (CASA)?

With significant thrust on opening of new savings bank accounts and mobilisation of low cost deposits, the bank’s low cost deposits (CASA) have improved from 35.22 per cent of total deposits in March 2007 to 37.40 per cent in September 2007.

What steps is the bank taking to improve its net interest margin?

In order to protect and improve NIM, the bank is focusing on increasing CASA deposits (which have improved from 35.22 per cent of total deposits in March 2007 to 37.40 per cent in September 2007). The bank has set a target of opening 10 lakh new savings bank accounts during 2007-08, which is likely to be achieved. The special schemes offering deposit interest rates of 9-9.5 per cent have already been withdrawn. The bank has also repaid high cost volatile bulk deposits to the tune of Rs 1,000 crore during the current financial year. Besides, emphasis is being laid on better yielding personal segment, SME and trade advances, which will help in improving NIM of the bank in due course.

Is there a possibility of a merger of SBBJ with SBI on the lines of State Bank of Saurashtra?

A decision in this regard has to be taken by SBI. It would be inappropriate for us to comment in this matter.

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