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Suresh Krishnamurthy

FRESH investments can be considered in the stock of State Bank of Travancore. The stock trades at a discount of 25 per cent to its book value and its performance in the past couple of years has been encouraging.

However, the stock's liquidity is quite low. Trading volumes have risen in the last six months but it is still only about a 1,000 shares (the stock's face value is Rs 100). The maximum investment that can be made in the stock is, however, restricted to 200 shares. The stock is listed in the BSE and not in the NSE.

Performance: State Bank of Travancore (SBT) is one of the associate banks of State Bank of India. SBT is a Kerala-based bank and about 600 of its 663 branches are located in Kerala.

However, its regional character has not affected its growth rates. In 2002-03, SBT reported 18 per cent growth in deposits and 23 per cent growth in advances. The rate of growth recorded has been higher than the average for the industry. Importantly, it also achieved significant reduction in non-performing assets.

SBT has continued the good performance in the first half of 2003-04. Operating profits doubled to Rs 392 crore. If net profits have grown only by 95 per cent, it was mainly because of aggressive provisioning made by SBT. Provisions for non-performing assets for the half-year were more than provisions made for the full year in 2002-03.

Importantly, going forward, the scope for improved performance is also high. SBT's cost of deposits was about 6.15 per cent at the end of September 2003. This is high compared to that of the industry and can be expected to decline. In addition, NRI deposits accounted for 43 per cent of its total deposits at the end of March 2003. With costs of NRI deposits declining sharply, this offers an opportunity for the bank to reduce costs further.

Infact, SBT expects operating profits to rise 33 per cent in 2003-04 to Rs 600 crore. This could place the earnings per share for SBT at upwards of Rs 450 per share. With dividend pay out ratio quite low at less than 15 per cent, the scope for a higher payout also exists.

Over the longer-term, amendments to legislation to allow investors to hold more than 200 shares and reduction in the face value to Rs 10 hold the potential to unlock value. In this context, the stock holds potential to deliver decent returns to the investor.

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