The Hindu Business Line : SBI Q4 results a surprise

Chennai May 12 Against the backdrop of a 30 per cent plus growth in profits of other public sector banks, a 3 per cent growth in profits by SBI for the current fiscal may seem a bit disappointing.

However, this performance has to be seen in the context of the contribution of a number of one-time events (gains from India millennium deposit scheme, write-back of provisions, etc) to the profits in the previous fiscal 2005-06.

SBI's fourth quarter performance, however, was a surprise. Given the poor show in the fourth quarter by ICICI Bank, its nearest competitor, expectations on SBI's performance in this quarter were muted. ICICI Bank suffered because of higher provisions that were required by regulators on personal loans, home loans and credit card outstandings.

SBI has reported a sharp increase (10-fold jump) in provisions for bad loans to Rs 1,430 crore. (Again, the impact of extraordinary items in the previous fiscal 2005-06 seems to make the performance look much worse in 2006-07). At the same time, the bank management has in the recent past expressed concern about rising non-performing assets, especially in the housing loan segment, traditionally considered a safe lending avenue. (Gross NPAs are still at a manageable level of 2.92 per cent) The bank's net interest margin has been at about 3.30 per cent through this year. The bank has maintained for sometime now that it would not take recourse to bulk deposits and end up inflating its costs. It could not, however, avoid the general increase in interest costs.

A quick succession of rate hikes by the regulator from December 2006 onwards, had forced all banks to raise rates by about 1.5 percentage points. But SBI has managed to keep its cost of deposits to just about 4.79 per cent an increase of 22 basis points over the previous year. One factor that must have aided SBI in keeping a lid on costs was the higher proportion of current and savings account (CASA) deposits at nearly 44 per cent of total deposits.

International operations, agriculture and mid-corporates are the three segments that have contributed maximum to the loan growth of 28 per cent last year. After nearly four years of 30 per cent plus loan growth, most banks have budgeted for a lower level this fiscal.

Plenty of banking paper seems set to hit the bourses; with SBI saying it would be raising nearly Rs 15,000 crore, although neither the exact quantum of equity nor timeframe has been specified. This comes on the heels of ICICI Bank announcing a fortnight ago that it would raise about Rs 20,000 crore of equity capital for funding opportunities in infrastructure and manufacturing sectors, apart from meeting regulatory requirements.

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