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Cover Story

SBI in a Flux, Time to Regain Momentum
More than external factors, itís internal inefficiency that is troubling SBI. To continue as the big gun, it now needs to go through a reality check.
Issue Date - 21/07/2011
When State Bank of Indiaís new Chairman Pratip Choudhary announced the bankís fourth quarter performance for FY 2011, it came as a shocker to almost everyone. It was down by 99% to a paltry Rs.208.80 million from Rs.18.67 billion in the year ago period. This even made the bankís share to plunge as much as 18% at the bourses as compared to its pre-result prices. But the fact was that it was only because the bank took a bold step to make an one time provision for its non-performing assets and sidelined as much as Rs.23.30 billion, which could have easily bolstered the banks bottomline for the quarter. Nevertheless, despite a 9.84% fall in the bankís net profit for the year, SBI still stands tall as the 5th most profitable company in the country with its registered net profit of Rs.82.65 billion. But with the first quarter of the fiscal approaching an end the question remains, after the disastrous performance in Q4, is everything alright now with SBI? Is it on track to hold onto its position in the current fiscal?

The answer perhaps is, tough, if not impossible. And the reasons, well, some are external to the company and some are self created. Talking about the problems thatís not in control of SBI, the biggest is of course the current sluggish economic conditions including inflation and continuous rate hikes by the Reserve Bank of India. With the apex bank raising its policy rates by 25 basis point early this month marking the tenth hike since April 2010, credit growth in the current financial year looks to be in jeopardy, more for the fact that the banks have no other option than passing the burden on to the customers. And with SBI being forced to shut down its teaser scheme, which was instrumental in the bankís 20.32% credit growth last year, it may find itself in deep water in terms of lending. The bank too have understood the very fact. Thus, to prepare its stakeholders, it has already slashed its credit growth forecast by around 300 basis points to 16-19% from 19-22% given earlier.

But more than the external risks, it is the internal inefficiencies that are posing the bigger troubles for the countryís largest lender this year. Despite being the largest business generator and profit maker among Indian banks, SBI ranks low both in terms of business per employee and profit per employee. While the same for ICICI Bank stood at Rs.1 million and Rs.73.5 million respectively at the end of FY2011, for SBI, it was just at Rs.0.38 million and Rs.70.46 million. On top of it, ICICI Bank has shown improvement on both parameters, whereas SBIís profit per employee has gone down by 13.76% from Rs.0.45 million at the end of FY2010 (Rs.0.47 million at the end of FY2009). At the same time, SBIís return on assets (RoA) is also on a slippery ground as compared to its industry peers. While ICICI Bankís RoA has gone up 18.58% from 1.13% to 1.34% in the last fiscal and second largest public sector bank Punjab National Bankís RoA has declined by 7% from 1.44% to 1.34%, SBIís RoA, which was already lesser than its peers at 0.88% at the end of FY2010, has dropped even further by an annoying 19.31% to 0.73% calling for some serious treatment at some level to rejuvenate the bankís performance indicators.

Nevertheless, the bank, which has already increased its base rate to 9.25% from 8.50% after discontinuing the teaser loans, now expects the higher rates to improve its net interest margin (NIM) to 3.5% from existing 3.35%. But then, though this NIM may sound better than some private players like ICICI Bank (2.60%), and IDBI Bank (2.10%), itís still far less than players like PNB (3.96%) and Axis Bank (3.65%).

Another aspect that needs immediate attention in SBI is its high NPAs (non-performing assets) ratio. For that matter, if one checks out the NPAs ratio of all banks who are part of BSE Bankex, SBI has the largest NPAs ratio of 1.63% at the end of FY2011. For that matter, two banks, ICICI Bank and Kotak Mahindra, which had a higher NPAs ratio (2.12% and 1.73% respectively) than SBI (1.72%) in the previous year, have already reduced the same to much lower levels (1.11% and 0.72% respectively). However, a confident Pratip Choudhury says, ďNPA doesnít mean that all is lost as the repayment could begin after a small gap. Further, all our loans are backed by underlying securities.Ē But then, he also assures the bankís shareholders that the bank will bring down the net NPA by 25 basis points by the end of the year.

After the plunge in profit in the last quarter and the share price fall that followed it, SBI, for investors at least, is at crossroads at the moment and Chairman Pratip Choudhary has a lot to prove. However, one good thing is that the options are very clear for him, either he becomes bold and a hard task master to revamp the banks efficiency level for better, or just moves on with the motion opening the gates for a greater fall. His decision to go ahead with the one time provisioning of over Rs.23 billion in the last quarter and to allow the profit fall for the same was a clear indication of his intentions to be a leader in the first category. But, he still has a long way to go. Certainly, the sooner he manages to travel the path, the better it is for SBI.

Deepak R. Patra           

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