SBI: Needs technology thrust - 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: Needs technology thrust

Jun 22, 2002

SBIís 80% jump in profits in the fourth quarter look commendable. Its full year profits also jumped by over 50%. However, if one were to look deeper into the results, it is not that impressive. The bankís domestic advances were up by a modest 8% and non-interest income growth was subdued at 7.5% (much below targeted 20%). The bank is feeling the heat of competition. During FY02, SBIís total advances portfolio inched up by just 6%. This growth rate was much lower than the industry growth rate of 12%. The bankís large exposure to the industrial sector, 50% of gross advances, impacted growth rate in FY02. However, the bank has given upbeat outlook for the credit offtake in the current year at 16%. This could be achieved through expected recovery in industrial demand and revival in commodity prices. To push up the credit demand, the bank has started lending aggressively at sub PLR rates. Most of its top corporate clients are borrowing at sub PLR rates (2.3% of domestic advances in FY02).

In retail segment too, SBI has made an entry with a vengeance. Its personal finance portfolio increased by a robust 33% to Rs 177 bn in FY02 (accounting for 15% of total advances). In retail finance, housing loans nearly doubled in FY02, forming 33% of total retail loans. The bank aims to grow its housing portfolio by over 75% in the current fiscal. SBI is one of the largest players in the housing finance market, with a share of about 14%. With bias towards softer interest rates and tax benefits for investments in housing loans, the bank is likely to achieve its target. The bank aims to achieve nearly 40% growth in personal finance loans in the current fiscal.

Apart from core banking revenues, SBIís non-fund based income also witnessed pressure in FY02. SBIís profits from sale of investments were up by just 3%, as against an exponential rise recorded by other banks in the sector. This could be due to the reason that the bank opted to hold its long-term maturity portfolio instead of booking profits when bond prices appreciated. As on March 2002, the bankís average yield on investment portfolio was 10.6% while incremental yield on investments is at 8%. The bank aims to liquidate some part of its long maturity investment portfolio in the current year, which is likely to fuel its other income growth.

Bank revenues from commission also witnessed a dismal growth rate of 7.5%. SBI is a leading player in the cash management business with volumes of Rs 1.8 trillion in FY02. In order to maintain growth in this revenue segment, the bank is offering competitive rates (lowering margins and leveraging on volumes). Its forex income grew strongly by 34% after having recorded a decline of 8% in the previous year. SBI aims to achieve 20% growth in its fee-based income in the current year.

Snapshot of fee based income
(Rs m)FY00FY01FY023 yrs CAGR
Commission & exchange 25,674 26,324 28,165 4.7%
Forex transactions 3,290 3,036 4,076 11.3%
Dividend from subsidiaries 649 771 1,027 25.8%
Sale of investments 2,697 4,766 3,516 14.2%
Lease income 2,060 2,406 2,668 13.8%
Miscellaneous 1,324 2,875 2,293 31.6%
Total 35,693 40,179 41,745 8.1%

SBI continued the process of cleaning up its books by increasing provision for non-performing assets (NPAs). In FY02, the bank provided Rs 20 bn, as provision for NPAs, which has helped in bringing down its net NPA ratio to 5.6% from 6.4% in FY01. Credit to the industrial sector turned sticky during the year on the back of a slowdown in industrial activity. SBIís gross NPA ratio came down marginally to 12%. In value terms, gross NPAs of the bank actually declined by 2.5% to Rs 155 bn due to its aggressive write offs. The amount written off by the bank was Rs 24 bn while the recovery was at Rs 21 bn.

SBIís VRS efforts paid off in FY02, which is reflected in its lower cost to income ratio at 54% (61% in FY01). The bank aims to bring down the ratio further to 50% in the current fiscal by improving productivity and leveraging on technology. The bank is not planning to go for second VRS, as it expects reduction of 10-15% of staff by natural attrition in the next 4-5 years. The bank has appointed TCS for implementing the core banking solutions. SBI has already computerized 80% of its business and aims to implement core-banking solution in 500 branches by October '02. It has set up 1,070 ATMs across the country. However, the discouraging part is that only half of them are interconnected.

Key ratios
Particulars SBIOBCCorporation Bank
Revenues/employee (Rs m)
Net profits/employee (Rs m)
Business/employee (Rs m)18.431.426.8
P/E (x)
Adjst. Price/Book value (x)

SBI is currently trading at an adjusted price to book value ratio of 1.5x, which is higher compared to its peers in the industry. Also, considering its earnings growth it looks fairly valued. However, if it adopts technology rapidly then it can have better opportunities to grow, considering its size and widespread network. Its valuations could get re-rated.

To read detailed financial click here .

Equitymaster requests your view! Post a comment on "SBI: Needs technology thrust". Click here!


More Views on News

India's Largest Bank, SBI Posts Record Profit in Q4 (Views On News)

May 22, 2021

All you need to know about the bank's latest financial results.

SBI Announces Quarterly Results (3QFY21); Net Profit Down 6.9% (Quarterly Result Update)

Feb 5, 2021 | Updated on Feb 5, 2021

For the quarter ended December 2020, SBI has posted a net profit of Rs 52 bn (down 6.9% YoY). Sales on the other hand came in at Rs 667 bn (down 1.4% YoY). Read on for a complete analysis of SBI's quarterly results.

SBI Announces Quarterly Results (2QFY21); Net Profit Up 51.9% (Quarterly Result Update)

Nov 6, 2020 | Updated on Nov 6, 2020

For the quarter ended September 2020, SBI has posted a net profit of Rs 46 bn (up 51.9% YoY). Sales on the other hand came in at Rs 668 bn (up 3.9% YoY). Read on for a complete analysis of SBI's quarterly results.

Union Bank of India Swings to Profit as Asset Quality Improves (Views On News)

Jun 8, 2021

Union Bank's share price up 2% post March quarter earnings.

PNB Reports Profit in March Quarter After Three-Way Amalgamation (Views On News)

Jun 8, 2021

Shares of PNB fell over 2% yesterday despite healthy quarterly results.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 18, 2021 (Close)