SBI set to rope in strategic advisor, to focus on capital conservation

The country’s largest lender, State Bank of India, plans to rope in a strategic advisor to conserve capital, increase return on assets and optimise the balance sheet. This comes in the backdrop of a decline in net loss to Rs 65.47 billion in 2017-18 due to a sharp rise in provisions for bad loans.

According to SBI executives, the aim is to do things efficiently with an eye on profitability, and get a feedback on areas, including which business to enter and which to exit. 

The bank reported a net loss of Rs 65.47 billion, and a pre-provision operating profit of Rs 595.11 billion in 2017-18. Net interest income came in at around Rs 748.54 billion, other income at Rs 446.01 billion and cost to income ratio at 50.18 per cent during the financial year.

The bank is looking to inter-alia optimise its balance sheet and increase its return on assets (RoA) and pre-provisions operating profit (PPoP) by growing interest income, treasury returns, fee income, and reducing interest expense, operating expense as well as optimising the balance sheet.

The work would be spread over 12 months. While the advisor assistance would set the ball rolling, the plan was to institutionalise the process for ensuring beneficial outcomes for the long term, SBI executives said.

As a step to attain scale and gain efficiencies, the bank merged five associates banks and Bharatiya Mahila Bank (BMB) with itself in 2017-18. The integration of network and consolidation of branches have given benefits such as cost saving and better utilisation of human resources and systems. But more work was necessary for deciding priorities such as which business activities should be in focus.

The consultant should perform an upfront diagnostic to identify opportunities that have the potential to improve the bank’s return on assets and pre-provisions operating profit through a detailed design of selected opportunities.

For the interest income, the key revenue source for the bank, the emphasis would be to understand the portfolio mix of other competitors in the market and its evolution.

Given the market outlook and the bank’s strengths and historical performance, the advisor is expected to play a key role in designing optimal portfolio mix across retail, small and medium enterprises (SMEs) and corporate lending book.

The opportunities to improve the tenure of lending products and reduce prepayments would be part of advisory ambit.

The study will focus on strategies adopted by players for effective recovery of retail and SME loans that have been written off to improve interest income and opportunities for the bank.

The strategies for enhancing opportunities for the bank to improve its priority sector lending portfolio management to maximise risk adjusted interest income and reduce investments in Rural Infrastructure Development Fund (RIDF).

On the fee side, the consultant is expected to assist in detailing opportunities to improve fee income from third-party products and subsidiaries — insurance, mutual funds, forex, derivatives and credit cards.

The strategies are needed for the bank to grow fee income from the corporate portfolio and identify other fee income opportunities for the bank, they added.