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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
ParticularsFY00FY01E
OPM 31.2%31.9%
Tax / PBT23.3%12.0%
NPM*9.2%11.2%
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.


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