State Bank of India (SBI) has reported a net profit of Rs4.1 bn for the 3QFY2000 which is an increase of 40.4% over the corresponding period of the previous year. Its operating profit went up by 51.7% for the 3QFY2000 to Rs9.7 bn from Rs 6.4 bn for the 3QFY99.
SBI (FY99 total income: Rs 19.11 bn) is India's largest bank. It runs the world's largest network of 8,900 branches and controls about 22% of India's loans and deposits.
Provisions and Contingencies
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During the third quarter...
Its interest income went up by 15.6% to Rs 56.2 bn for the 3QFY2000, over the corresponding period of the previous year and its interest expenses rose by 13.3% to Rs 39.6 bn for the 3QFY2000 over the same period. As a result its net interest income went up by 21.6% in the 3QFY2000 over the corresponding period. The main drivers of net profit growth have been a sharp rise in its net interest income, growth in profits from its international operations and treasury operations during this period.
For the nine month period…
For the nine month period of FY2000 its interest income went up by 18% to Rs 161.3 bn from Rs 136.5 bn in the nine months of FY99, while its interest expenses for the same period of FY2000 went up by 20.8% to Rs 114.5 bn, resulting in an increase in net interest income of 12.2% for this period. Even though SBI had a higher growth in interest income for the nine-month period, due to higher interest expenses its net interest income growth was lower.
Its provisions and contingencies have risen sharply by 60.9% to Rs 5.7 bn for the 3QFY2000. For the nine month period its provisions and contingencies were up by 37.8% from Rs11.7 bn in the first nine month period of FY99 to Rs 16.1 bn for the nine month period of FY2000. This was mainly on account of higher provisions for non-performing loans and provision for salary revision arrears.
A pick up on the country's economic scenario can be seen from SBI's 3Q results. Its operating profits are up by 52% YoY in the 3QFY2000 as compared to a growth of 17.4% for the nine-month period of FY2000. Hence if it were not for an improvement in the 3QFY2000 performance the nine month performance would have been worse off.
The spreads for the banking industry have been under pressure due to fall in interest rates, and hence SBI is no exception. Inspite of this pressure on spreads SBI has managed to show results. Its non-performing loans should continue to improve in line with the economic recovery as companies will be in a better position to repay loans.
However looking ahead the key things for SBI would be its level of computerisation and how swiftly it can manage to automate itself. Another important criteria for future profitability would be its plans to get into internet banking because the newer players like HDFC Bank and ICICI Bank are very aggressive on this front. SBI's market share is likely to come down if it does not come up with a clear cut strategy on how to tackle this growing threat in the banking industry. Currently HDFC Bank's market capitalisation is Rs 45.9 bn, 40% of SBI's market capitalisation of Rs121 bn, while HDFC Bank's net profit at Rs 824 m for FY99 is just 8% of SBI's FY99 net of Rs 10.3 bn. Inspite of such a vast difference in profits the gap between their market capitalisation's is narrowing. SBI has also in the recent past indicated its plans to raise equity to maintain its capital adequacy ratio.
The improving economic scenario and the steps taken by SBI to counter its inefficiencies has made many analysts turn positive on the stock.
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