SBI: Ambitious plans - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

SBI: Ambitious plans

Jun 12, 2001

State Bank of India, India’s largest public sector bank is in the news these days with plans to focus aggressively on tech banking and insurance. The bank has also decided to take a hit in profits by writing off the entire VRS expenditure (estimated to be Rs 2.4 bn). SBI, which is considered a relatively slow mover in tech banking, has planned to invest Rs 8 bn for IT initiatives. This will be done through a new company named SBI Infotech; it will enter into several joint ventures in the area of ATMs, net banking and core banking. As of now it has already integrated 247 ATMs in 7 cities and is planning to set up 1,000 ATMs by FY02. The soft launch for its Internet banking venture has already taken place. To start with, 51 branches will offer the facility, which will be expanded to 100 branches in the second stage. The returns from these investments would percolate to its bottomline in the next two years.

During the year SBI entered into a joint venture with Cardiff of France for life insurance business. The bank plans to launce new products in 20 cities by mid June and will be the first to introduce bank-assurance products in India. This will enhance its fee income in the next five years.

For the first time SBI has drawn up a five-year business plan to increase its exposure in retail financing. The bank will shift its focus from top-rung corporates to middle-level ones, and come out with a slew of new products to capture the mid-corporate segment. It has earmarked almost 40% of credit target amounting over Rs 60 bn towards retail financing during FY02. This would include Rs 39 bn towards housing loans and over Rs 20 bn for pure consumer finance. The bank’s new vision could help it beat the economic slowdown as it is shifting its focus from traditional industrial finance.

SBI has implemented VRS during the year and about 23,000 employees have opted for the same. The bank plans to write off the entire expenditure of Rs 24 bn in FY01 itself. This will result in a substantial decline in net profits in the fourth quarter of the year. For the full year (March ’01), profits are expected to drop by over 70%. Nevertheless, it will result in a significant improvement in returns on capital employed in future years, as it will reduce the cost to income ratio to 53% (currently 59%).

Expected performance
(Rs m)FY00FY01EChange
Interest Income 222,009 252,467 13.7%
Other Income 35,693 39,976 12.0%
Interest Expenses 152,726 172,047 12.7%
Operating Profit 104,977 120,397 14.7%
Other Expenses 62,952 68,626 9.0%
Profits before tax 42,025 51,771 23.2%
Tax 9,785 6,212 -36.5%
Provisions & contingencies 11,725 17,361 48.1%
Net Profit 20,516 28,198 37.4%
VRS write off - 24,000  
Profits after adjustments 20,516 4,198 -79.5%
Equity shares (m) 526 526  

Key ratios
OPM 31.2%31.9%
Tax / PBT23.3%12.0%
EPS (Rs)*39.053.6
* Excluding Extraordinary Items

At the current market price of Rs 218 SBI is trading at a P/E of 3x FY02 projected earnings and price to book value ratio of 0.7x. The bank’s future valuations depend on the successful implementation of the technology plan and improve efficiency levels.

Equitymaster requests your view! Post a comment on "SBI: Ambitious plans". Click here!


More Views on News

SBI Announces Quarterly Results (1QFY21); Net Profit Up 81.2% (Quarterly Result Update)

Aug 3, 2020 | Updated on Aug 3, 2020

For the quarter ended June 2020, SBI has posted a net profit of Rs 42 bn (up 81.2% YoY). Sales on the other hand came in at Rs 665 bn (up 6.2% YoY). Read on for a complete analysis of SBI's quarterly results.

SBI Announces Quarterly Results (4QFY20); Net Profit Up 327.1% (Quarterly Result Update)

Jun 8, 2020 | Updated on Jun 8, 2020

For the quarter ended March 2020, SBI has posted a net profit of Rs 36 bn (up 327.1% YoY). Sales on the other hand came in at Rs 627 bn (down 0.5% YoY). Read on for a complete analysis of SBI's quarterly results.

How the YES Bank Collapse Unfolded - 10 Points (Sector Info)

Mar 9, 2020

A timeline of how YES Bank went from a stock market darling to a pariah.

Today's Stock Market Crash: 10 Points (Sector Info)

Mar 6, 2020

Top factors that dragged the markets lower today.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

I Recommended this Stock over Page Industries because it's Relevant to Doubling Your Income (Profit Hunter)

Sep 7, 2020

Things are not often what they seem in the market and how you can take advantage of this.

The NASDAQ Whale Could Harm Your Portfolio (Fast Profits Daily)

Sep 7, 2020

The discovery of Softbank pushing up prices on the NASDAQ will cause volatility in the market. Stay alert!

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 18, 2020 03:37 PM