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Bad loans hurt SBI

Calcutta, May 12: The State Bank of India today posted a net profit of Rs 4,541.31 crore for the financial year 2006-07, a marginal increase from Rs 4,406.67 crore in the previous year.

“In 2005-06, we had a one-time exceptional income of about Rs 3,000 crore. If we exclude this, our net profit in 2006-07 shows a three-fold increase over the previous year,” said chairman .P. Bhatt.

Higher provisioning for bad loans affected the bank’s profitability.

The SBI had to keep aside Rs 1,430 crore for loan losses in 2006-07, almost 10 times higher than Rs 148 crore in the previous year.

“In 2005-06, we wrote off Rs 840 crore of bad loans. The provisioning requirement for standard loans was also lower. We had to keep aside an additional Rs 400 crore this year. Thus, we had to provide Rs 1,240 crore more capital against loans during 2006-07 than in the previous year,” Bhatt said.

The bank’s operating profit, however, increased 21.23 per cent to Rs 10,000 crore in 2006-07 on the back of a 40.36 per cent growth in interest income at Rs 24,839 crore against Rs 17,696 crore in 2005-06 and a 31.57 per cent spurt in non-interest income at Rs 5,769 crore.

Total income grew 29 per cent to Rs 14,435 crore from Rs 11,186 crore a year ago. The board of directors has recommended a dividend of Rs 14 per share for 2006-07.

The bank’s total deposit was Rs 4,35,521 crore in March this year, up from Rs 3,80,046 crore in 2005-06. Advances grew by 27.95 per cent to Rs 3,42,232 crore.

“To keep pace with the growth in business, we have to pump in an additional capital between Rs 14,000 crore and Rs 15,000 crore this year to maintain the bank’s capital adequacy at 12 per cent,” Bhatt said.

“We plan to raise this capital, that includes both equity (tier I) and debt (tier II), before December,” he added.

The bank is also planning to tap the capital market with a public issue.

“A follow-on public issue is one of the options that we are contemplating and if we at all come out with any such offer, it will be at around Rs 5,000 crore because anything less than that will not be cost effective for us,” the SBI chairman said.

The bank is already in talks with a few investment bankers on its capital raising plans.

The country’s largest bank is also planning to enter the private equity and venture capital segments soon.

“We are looking for partners for these new ventures. In fact, we are in advanced stages of negotiation with some of them,” Bhatt said.

“The initial corpus of the fund will be $1 billion (Rs 4,500 crore), which we plan to start raising in June. The capital will be raised in different tranches depending on the investment requirement,” said Yogesh Agarwal, managing director and group executive (national banking) of the SBI.

“We have already filed an earnest of interest (EoI) with the market regulator and the government,” Bhatt said.

The private equity and venture capital outfit, which will be floated as a separate company, will invest in companies in the infrastructure sector.

The SBI has also shortlisted two foreign partners for its proposed general insurance venture.

The bank is planning to get into pension fund management through one of its subsidiaries — SBI Mutual Fund or SBI Life Insurance Company.

While the mutual fund has a foreign partner in Societe General de France, Cardiff is the foreign partner in the life insurance venture.

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