Net interest margins to drive SBI's profitability

Buoyed by impressive net interest margins, State Bank of India (SBI), the country's largest lender hopes to post better than expected performance for the third quarter (October-December period) of the current fiscal.

SBI's net profit is expected to be over Rs 10,000 crore in 2011-12, a top bank official indicated.

“Our net interest income margins are very good. They are touching 3.8 per cent. SBI recorded net profit of Rs 1,550 crore in the first quarter and Rs 2,850 crore in the second quarter. On an average, SBI has been making profit of Rs 2,500 crore per quarter and we believe we can outperform this figure in this fiscal,” SBI chairman Pratip Chaudhuri told reporters.

“The Government of India has approved capital infusion of Rs 7,900 crore in SBI and we expect it to come before the end of March this year,” he said. The capital infusion would help raise SBI's Tier-I capital to eight per cent.

Responding to a query on revisiting interest rates in the aftermath of a pause in monetary tightening cycle by the Reserve Bank of India (RBI), Chaudhuri said, “We'll definitely have a re-look at interest rate on loans. Our asset liability committee will meet soon to take a call on the matter. Our base rate for loans at 10 per cent is the lowest among all public sector banks.”

On raising interest rates on savings bank deposits after the RBI announced de-regulation on such deposits, he said: “We are currently offering four per cent on such deposits. Only three private sector banks are offering higher interest than us. But these banks have not witnessed any major inflow of customers nor have we seen any appreciable dip in our customers.”

The PSU bank is also looking to expand its international banking operations. “We are going to open a subsidiary in Australia within a year. SBI will also be opening a couple of branches in Bangladesh. At the same time, we are looking to expand our footprint in London and US,” the SBI chairman said.

The bank recently opened a branch at the Qatar financial centre. SBI's overseas balance sheet stands at $30 billion of which bonds constitute $6 billion.

The largest lender is waiting for international market conditions to stabilize before going for more offshore bonds.

In the domestic market, SBI is planning to add 1,000 branches and 2,000 ATMs in 2012.

On exposure to telecom operators embroiled in the controversial 2G spectrum allotment, he said, “We have an exposure of Rs 2,500 crore to Idea Cellular and Tata Teleservices. Though some of their licenses have been quashed, these companies are in a position to pay back their loans.”

In the Orissa circle, SBI has a network of 672 branches and 1,114 ATMs. The PSU lender intends to add 40 more branches and 100 ATMs in the state in 2012. It has covered all 468 villages allotted to it under Financial Inclusion Plan by State Level Bankers' Committee. SBI's total deposits in the state stood at Rs 37,000 crore and advances at Rs 15,643 crore by the end of March, 2011. The bank has disbursed home loan worth Rs 2,245 crore to over 17,000 customers and education loans of Rs 874 crore to about 100,000 students.