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UTI Bank – Going ahead with innovations

Jul 1, 2000

UTI Bank is among the first private sector banks in India. Since commencement of operations in 1994, it has grown into a highly competitive bank in terms of its products and services. It operates through 49 fully computerised branches, all of which are networked through VSAT. In a bid to maintain a competitive edge in the fast changing market, UTI Bank has decided to become a leader by investing in technology to provide e-commerce facilities to its customers. For the purpose it has appointed KPMG as consultant for developing its e-commerce strategy. In the current year the bank intends to install 200 offsite ATM centres across the country. In addition the bank expects to open another 30 branches in the current year. This aggressiveness will facilitate its retail push.

The net NPAs of the bank reduced to 4.7% in FY00 compared to 6.3% in FY99. The bank is striving hard to reduce its NPA to 3% by the year-end. Also the bank has a healthy capital adequacy ratio of 11.4% as against 9% stipulated by RBI.

In the current year, the bank has witnessed a jump of 88% in its total deposit base to Rs 57 bn. Also the aggregate advances of the bank recorded a growth of 61.6% to Rs 35 bn. The bank’s treasury and merchant banking division also grew very fast during the year. Although on a comparative basis the size of the bank is small, but it is growing organically to stay in lead with the other private sector banks.

Comparative financial performance
Particulars UTI
Bank
HDFC
Bank
ICICI
Bank
SBI Corporation
Bank
Interest income (Rs bn) 4.8 6.8 8.5 214.5 16.0
Growth 29.0% 80.8% 56.8% 12.0% 19.0%
Net profit (Rs bn) 0.5 1.2 1.1 14.7 2.3
Growth 64.0% 45.6% 66.2% 46.0% 21.0%
Operating profit margins 19.0% 44.9% 21.8% 28.0% 29.0%
Net profit margins 11.0% 17.7% 12.3% 7.0% 15.0%
CAR 11.0% 12.2% 19.6% 13.0% 13.0%
NPAs 5.0% 0.8% 1.1% 7.0% 2.0%
EPS (Rs) 3.9 5.9 5.4 27.9 19.4

Comparative valuations
At the current market price of Rs 33, the bank has comparatively lower valuation than the other private sector banks. However its valuations are slightly higher than the public sector banks due to its aggressiveness in adapting new technology and higher growth ratios. Once the bank is successful in reducing its NPA ratio with improved financial performance a possible re-rating could be on the cards.

Particulars UTI
Bank
HDFC
Bank
ICICI
Bank
SBI Corporation
Bank
Market Price (Rs) 33.2 254.3 211.5 226.4 81.2
Price/Book value (x) 1.8 8.2 3.6 1.1 0.9
Market Cap (Rs bn) 4.4 61.9 41.6 119.1 9.7
Market Cap/Gross income (x) 0.9 9.1 4.9 0.6 0.6

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