The Hindu Business Line : SBI results: Varying sharply from general trend

State Bank of India's results (showing a 2.5 per cent drop in net profit) seem at first glance to vary sharply from the general trend of bank results being fairly robust during this quarter.

While top private banks such as ICICI Bank, HDFC and UTI Bank posted an average of 30 per cent growth in profits, the three top public sector banks (Canara Bank, Bank of India and Bank of Baroda) taken together have seen a profit growth of 23 per cent on the average.

However, the drop in SBI's net profit for the quarter is attributable, as in a few other cases, to the presence of an extraordinary item (non-recurring in nature), being a write-back of tax provision in the corresponding quarter of the previous year.

Banks, in this quarter, have generally not made the expected profits on treasury. When the yield on 10-year Government paper, which had touched 8.30 per cent in the early part of the second quarter, came down to about 7.50 per cent, it was expected that banks would consequently see a considerable appreciation in their investment portfolios and book a sizeable profit. That does not seem to have happened. In fact, SBI's profits on sale of investments dipped to about Rs 7.69 crore in this quarter compared to about Rs 246 crore in the same period last year. However, the bank, benefited from the reversal in interest rate trends, and had to provide only about Rs 423 crore as depreciation on investments compared to nearly Rs 1,089 crore previously. This gain was partially offset by higher NPA provisions of Rs 116 crore (Rs 11 crore) and higher standard assets provision of Rs 140 crore (Rs 40 crore).

Re-pricing of loans

The re-pricing of loans, following a hike in prime lending rate, by many banks has resulted in average yields on advances going up by between 0.50 per cent. SBI seems to have improved its yields on advances by close to 0.65 per cent to about 8.55 per cent.

SBI's loan growth of 21 per cent and deposit growth of 11 per cent, although impressive for a bank of its size, are considerably lower than the system growth of 30 per cent and 20 per cent respectively. Raising resources to meet the gap if loan growth continues at this pace, will pose a challenge. On the other hand, rising interest rates could moderate loan demand to a more sustainable 20 per cent. SBI's stated policy of not taking recourse to bulk deposits may help preserve or improve its current net interest margin of 3.32 per cent in the next quarter.

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