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Rajnish Kumar, Chairman, State Bank of India, has exhorted his bank’s 2.60-lakh-odd employees to roll up their sleeves to deliver an operating profit of about ₹70,000 crore in FY2020.
In view of the volatility caused by one-off income, India’s largest bank intends to focus on operating profit in general, and, in particular, operating profit from core operations.
SBI clocked a lower standalone operating profit of ₹38,503 crore in the first nine months of FY2019, against ₹43,628 crore in the year-ago period.
Referring to the operating profit earned by the bank in the last two years, Kumar, in a communication to the bank’s staff, said some part of this has been contributed by one-time items such as disinvestment/initial public offer of SBI Life, and sale of non-core assets/strategic disinvestment, among others. But growth in operating profit from core banking operations has been slightly lower.
Exceptional items
The SBI chief underscored that one-time items, or exceptional items, tend to distort the comparison of the profitability trend, where profit should be a function of the core operating performance, rather than from exceptional items.
The bank wants to target a higher core operating profit to take care of unexpected exigencies resulting in higher provisioning.
Further, a robust operating profit will also lead to improvement in efficiency parameters, such as return on assets, return on equity, cost to income ratio, and net interest margin, among others.
Among profitability parameters, the bank is eyeing return on assets (net profit/ average total assets) of 0.70 per cent for FY2020 (against 0.001 per cent for the nine months of FY2019); bringing down the cost to income ratio (non-interest expenses/net total income) to less than 50 per cent (against 56.97 per cent as on December-end 2018); and optimisation of net interest income (by focussing on increasing current account deposits and considering increase in interest charged to borrowers, especially those enjoying below-card rates).
Each of the bank’s five business units – national banking group, corporate accounts group, commercial clients’ group, global markets unit, and international banking group – is expected to achieve the business targets, which will flow from the targeted operating profit.
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