• JANUARY 30, 2002

SBI: On the growth track

India's largest public sector bank, State Bank of India (SBI) has reported splendid financial performance for the quarter ended December 2001. The bank's interest income witnessed a strong growth of 16% and operating profits jumped by 60%.

(Rs m) 3QFY01 3QFY02 Change
Income from operations 64,320 74,628 16.0%
Other Income 8,306 9,037 8.8%
Interest expense 44,905 51,944 15.7%
Net interest income 19,415 22,684 16.8%
Other expenses 16,475 17,995 9.2%
Operating Profit 2,940 4,689 59.5%
Operating Profit Margin (%) 4.6% 6.3%  
Provisions and contingencies 8,209 3,833 -53.3%
Profit before Tax 3,037 9,893 225.7%
Tax 837 3,754 348.6%
Profit after Tax/(Loss) 2,201 6,139 179.0%
Net profit margin (%) 3.4% 8.2%  
No. of Shares (m) 526.3 526.3  
Diluted Earnings per share* 16.7 46.7  
P/E Ratio   4.6  

When other public sector banks have posted single digit growth in interest income during the December quarter, SBI managed its growth track. The bank's aggressiveness in retail lending seems to have contributed to its healthy growth in topline. SBI has also started lending below PLR. Its net interest income has recorded a 17% rise on the back of low borrowing costs. SBI's other income however, increased at a slower clip. The bank is facing stiff competition in its forex and cash management business from private sector banks. Other income for SBI accounts for just 11% of total income compared to over 15%-18% for other banks.

During the quarter, the bank's operating margins improved by about 170 basis points. Reduction in employee cost (benefits through VRS ) and operating efficiencies offered higher margins to the bank. The bank's cost to income ratio declined to 57% from 59% in the comparable previous quarter. The bank has provided Rs 866 m towards VRS on a prorata basis for the December quarter, which was included in other expenses figure. Excluding this, cost to income ratio reduced further to 54%.

Earnings for the quarter soared by 179% due to a 53% decline in provisions and contingencies. In the 3QFY01, SBI had provided an amount of Rs 4.6 bn towards the estimated one time issue expenses on India Millennium Deposits (IMD), to be redeemed at the end of five years, in the year 2005-06. These expenses were included in provisions and contingencies. Excluding this, pre tax profits grew by just 30%. A four fold rise in tax figure curtailed earnings figure further. Net profits of the bank excluding IMD have actually declined by 10%.

At the current market price of Rs 215, SBI is trading at a P/E multiple of 4 times its FY02 projected earnings and Price/Book value of 0.8 times. Its current valuations are lowest among its peers in the sector. With its focus on reducing the level of NPAs and technology upgradation plans, re-rating in the stock could be on the cards.

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