A clean-up act, says SBI Chairman

Investors may have had a nasty surprise with State Bank of India declaring its fourth quarter profits at just Rs 20 crore, with increased provisions being the major spoilsport.

But, the top management reasoned out that the current hit is for the future good. Commenting on the heightened provisions under various heads, “….whether it is pension, provision coverage ratio or standard assets provisioning we have done a considerable clean-up act. In the interest of transparency, we have taken the hit this year itself so that, going forward, we have no legacy issues”, declared the bank's Chairman, Mr Pratip Chaudhuri, at an investment analysts' meet following the declaration of the bank's fourth quarter and FY11 results. “For gratuity too, while we could have amortised this expense over five years, we decided to load it upfront, so that the impact over the next 16 quarters will only be Rs 25 crore, ” he added.

The new Chairman may start on a clean note as desired, but “with Tier-I capital falling to about 7.77 per cent, will the desired growth come in ”, was the question on the lips of many analysts. But the management does not consider capital, the restraining factor for asset growth as it expects the rights issue to come through sooner than later. Besides, the management also explained that it had room for an additional two per cent capital (current CAR being 11.98 per cent) and would, on an average, make a profit of about Rs 9,000-10,000 crore during the year. There was also enough room for raising tier-II capital, it was pointed out.

High interest rates

However, the Chairman did admit that high interest rates could slowdown expansion and capex plans of corporates and in turn affect the bank's credit growth. Nevertheless, he was not too worried about the delinquencies that an elevated interest rate regime could bring in from the corporate side. Overall, the management targets a credit growth of 17-18 per cent in FY12 and a Net interest Margin (NIM) of 3.50 per cent.

Surprisingly, at a time when interest rates have been moving up, the bank's yield on advances have slipped marginally from 9.58 per cent as at December 2010 to 9.56 per cent in March 2011. How does the bank plan to meet this targeted NIM of 3.5 per cent? SBI, has a three- pronged approach, explained Mr Chaudhuri. One, the bank is looking to increase the share of short-term deposits in its fund base. Two, given its branch network, the bank is targeting retail deposits more aggressively, given its low-cost nature. Besides, SBI is also looking at improving its term loan portfolio as these loans carry a higher interest rate point to point, compared with working capital loans. Finally, help would also come in from the base rate, which at 9.25 per cent, has become more market-aligned currently. The hike in base rate would cover the increased costs of savings funds too, he added.

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