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State Bank of India – Getting aggressive

Jun 20, 2000

India’s largest commercial bank State Bank of India (SBI) is becoming aggressive in order to remain in competition with new private sector banks. SBI is the largest bank in the country with a customer base of around 80 m. The bank accounts for approximately 28% of the total deposits and advances in the country. The deposits of the bank stand at Rs 1,690 bn and advances at Rs 824 bn as on March 1999. It is also one of the cheapest providers of housing loans in the country. The bank is striving hard to improve its technological capabilities.

In the retail segment the bank has launched string of products like credit cards, Internet banking and the recent announcement to install 1,000 ATMs by the end of March 2002. It has also announced plans to invest around Rs 6 bn in technology improvement in an attempt to make a foray into e-commerce by the end of the current fiscal year. It has already appointed KPMG as advisor for the proposed technology initiatives. The bank seems strategically well placed to consolidate its position with this IT initiatives.

SBI has also planned a foray into insurance as it already fulfills the criterion set by RBI regarding networth. This lucrative segment will complement the reach of the SBI with its wide distribution network and will help to give a substantial boost to its topline growth. The bank is also expected to come out with a VRS scheme intending to reduce its high workforce by the end of this year. It is a one-time cost, which will improve the profitability of the bank in future by saving in employee cost.

In the recent budget, government has announced to bring down its holding in PSU banks to 33%. The bank is likely to raise about Rs 45 bn from the capital markets in India and abroad in the near future subject to the amendment to the SBI Act. It is expected to raise the major portion through ADR issue, which will improve the Capital Adequacy Ratio (CAR) of the bank from the present 12.5%.

At the current market price of Rs 231, SBI trades at Price/Book value ratio of 1.2 times. The bank gets comparatively lower valuations than private sector banks due to its high level of NPAs at 7.2%. The situation could improve this year since the management is becoming more focussed in its attempt to improve efficiencies by leveraging on technology. If the management’s initiatives were to trickle down to the bottomline, a re-rating of the stock would be a forgone conclusion.

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