The country's largest bank, State Bank of India (SBI), has adopted a strategy of reducing the portfolio of large corporate loans, which are lent at rates much below the bank's prime lending rate (PLR). | |
| SBI, which has over 20 per cent share of the banking business in the country, is also consciously shrinking its dependence on high-cost bulk deposits. Both the measures would ensure that the bank's net interest margins remain protected. |
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| The strategy is being implemented in the face of increasing pressure on banks by large corporates to reduce the lending rates, which have increased by 2 to 3 per cent over the last one year. |
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| The lending rates are still below the banks' PLRs. The PLRs of top five public sector banks range from 11 to 11.5 per cent, up from 10.25 to 10.75 per cent a year earlier. SBI's PLR is 11 per cent. |
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| SBI's advances grew by 22 per cent year-on-year and deposits grew by 11 per cent year-on-year, lower than the banking system growth, owing to a conscious management strategy of reducing low-yielding large corporate loans and high-cost bulk deposits, said Edelweiss in its research report on SBI's 2006-07 second quarter results. |
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| The bank's retail advances grew by 26 per cent and constituted 26 per cent of the total credit at the end of September 2006 against 25 per cent in September 2005. Its SME advances constituted 25 per cent of total gross advances as against 24 per cent in September 2005, while international business is 11 per cent of gross advances as of September 2006. |
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| The bank's net interest income grew 8 per cent in the quarter ended September 2006 from a year earlier, but was flat compared with that of the previous quarter. |
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| This was on account of 15 basis points year-on-year improvement in net interest margin to 3.3 per cent in the second quarter of 2006-07, stimulated by higher yield on loans, particularly retail loans. |
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| SBI's yield on loans has improved by 74 basis points to 8.55 per cent when compared with the yield in the second quarter of 2005-06, while its cost of deposits declined by 13 basis points to 4.13 per cent in the second quarter of 2006-07. |
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| The bank saw a decline in cost of deposits, as the share of current account and savings account (CASA) deposits rose to 43 per cent from 40 per cent a year earlier. Edelweiss said it expects SBI's NIM to be 3.3 per cent in 2006-07. |
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| Edelweiss said it is lowering its estimate for growth in advances of SBI to 22.5 per cent from the earlier projected 24 per cent. |
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| The bank's advances grew by 21 per cent to Rs 2,88,840 crore at the end of September 2006 from Rs 2,38,351 crore a year earlier. |
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