SBI has reported a 71% jump in net profits for the second quarter ended September 2000. The bank's operating margins also improved to 32.7% due to lower interest cost and abolition of interest tax from April 2000. Also large volume of business enabled the bank to reduce its transaction cost.
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However, excluding the provisions for depreciation on investments and write back of depreciation charge the profits have increased by 27% year on year. Investment portfolio of the bank has been classified according to RBI guidelines. As a consequence the bank has not made provision for depreciation in the value of investments to the extent of Rs 1.8 bn.
SBI's average advances during the 1HFY01 increased by 23.8% and deposits grew by 15%. The bank's credit to deposit ratio also improved to 56% (from 52% in 1HFY00). The bank's prime lending rate (PLR) has been increased by 75 basis points to 12% from 12th August 2000. The benefits of the rate reduction (Rs 1.5 bn) would be available to the bank throughout the year. Since deposit rates would not be revised in proportion to the increase in PLR.
The bank is also not lagging behind in terms of technology implementation. It plans to invest around Rs 5 bn in setting up of ATMs, e-banking and networking of branches. Its SBI Card has been well received in the market. The bank has issued nearly 38,000 cards in the month of September taking the total number of card holders to 444,000.
At the current market price of Rs 157 SBI gets a P/E multiple of 3 times its 2QFY01 annualised earnings. The bank expects earnings per share of Rs 45 for the year ended March 2001. We believe, SBI would be able to sustain its profitability, through greater attention to costs, higher business volumes, fee based income, focus on retail banking and new customised products. We have to revise our projections based on the current quarter results and amendments in RBI guidelines (on provision for depreciation in the value of investments).
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