| State Bank chairman A.K. Purwar in Calcutta on Friday. Picture by Kishor Roy Chowdhury
Calcutta, May 19: The hardening of interest rates has left a hole in State Bank of India’s fourth-quarter earnings. The country’s largest commercial bank today reported a 20 per cent drop in fourth-quarter net profit at Rs 853.29 crore against Rs 1,064.88 crore in the year-ago period.
Rising interest rates have depreciated the bank’s investments in government securities and other fixed-income instruments (if interest rate rises, bond value falls). As a result, SBI had to set aside more money to provide for the depreciation and amortisation of its investments.
Lower profit in the fourth quarter has affected the bank’s full-year performance ' it rose just 2.4 per cent over the previous financial year. The bank has announced a dividend of Rs 14 per share of Rs 10 face value.
The bank’s quarterly earnings have been steadily declining from Rs 1,222.83 crore in the April-June quarter.
“We had to set aside Rs 1,800 crore for investment depreciation in 2005-06. This is the first time that we have to make such a huge provisioning for depreciation,” chairman A.K. Purwar said.
“This is also the first time that we have to provide Rs 458 crore towards fringe benefit tax,” he added.
However, the bank’s net profit for the whole year has increased marginally to Rs 4,406.67 crore from Rs 4,304.52 crore in 2004-05.
Total income has increased to Rs 43,183.62 crore, a 9.1 per cent growth over the previous fiscal. However, its interest income from investments has declined by over Rs 2,000 crore to Rs 13,977.53 crore from Rs 16,027.67 crore. The bank’s interest income on balances has also steadily declined in the successive quarters in the last fiscal, which reflects SBI’s shrinking liquidity position.
The bank’s expenditure towards employees’ salary and payments has also shot up to Rs 8,123.04 crore from Rs 6,907.35 crore in the previous fiscal.
Total deposits with the country’s largest public sector bank have increased to Rs 3,80,046 crore against Rs 3,41,419 crore in the previous fiscal. Advances rose to Rs 2,67,131 crore from Rs 20,22,374 crore in 2004-05.
Gross non-performing assets and net non-performing assets as a percentage of advances has come down, reflecting an improvement in asset quality.
While gross NPA stood at 3.88 per cent, net NPA was 1.87 per cent at the end of 2005-06.
“We have identified education, healthcare, tourism, project financing and mid-size corporate financing as growth sectors for the bank,” Purwar said.
SBI may need additional capital of at least Rs 7,000 crore during the current financial year to meet its capital adequacy requirement in the face of a rapid credit growth, according to the bank’s chairman, A.K. Purwar.
SBI targets a 23 per cent increase in advances for 2006-07 on top of a 32 per cent growth at Rs 267131 crore in 2005-06. “Our credit-deposit ratio is 66 per cent as of now and we can push it up to 72 per cent,” Purwar said. However, the country’s largest public sector bank needs to raise additional capital because its capital adequacy ratio has fallen to 11.88 as on March 31, 2006 from 12.45 a year ago and 13.53 in 2003-04.
“We will soon raise Rs 500 crore subordinated debt (tier II capital), which will have a greenshoe option, and the rest will be raised through the hybrid capital route ' cumulative perpetual preference shares and hybrid upper tier II bonds,” he said.
The bank’s reserves, however, stood healthy at Rs 27117.79 crore, up from Rs 23545.84 crore in 2004-05.
“We will be among the world’s top 50 bank’s in the next three to four years and among the top 5 bank’s in Asia in the next two to three years,” Purwar said. SBI is now ranked 82nd among the world’s top 100 banks and eighth in Asia.
“SBI will achieve this goal by following its overseas acquisition strategy,” SBI chairman said. The bank has already acquired majority stakes in three banks in Mauritius, Indonesia and Kenya. “Asia and Africa are our focus areas and we are eyeing 2-3 more acquisitions this year,” Purwar said.