A Post-Dated Cheque?

The fundamentals of SBI project a healthier picture than what is reflected in its stock prices

The State Bank of India took a massive hammering post-Budget. The stock, which was trading at Rs 310 one day prior to the Budget, fell to Rs 275 within a fortnight. This was because market expectations of an increase in FDI limit for public sector banks did not materialise.

The stock had run up from Rs 265 in December peak before the Budget in anticipation of this move. Currently, the stock has settled comfortably at around Rs 275 levels. Though, fundamentally, most analysts agree that the stock has good potential over the medium-term, there are a few concerns.

Some analysts argue that the bank's fee-based income is slipping when compared to its competitors. Its fee-based income has shown only a 13.4 per cent increase as opposed to 68.4 per cent for HDFC Bank and 81.4 per cent for UTI Bank in the financial year 2002. However, officials at the bank point out that the base being higher for State Bank, the bank is growing faster in absolute numbers.

Moreover the corporate segment of the bank has made losses in the third quarter of this fiscal. After registering sequential growth in profits in the second quarter, the corporate segment hit a roadblock. Revenues from the corporate segment were down from Rs 483.99 crore in the second quarter to Rs 481.96 crore for the third quarter.

While this may appear to be an insignificant amount in the backdrop of Rs 13566.69 crore total revenue in the third quarter, this was the most profitable segment for the bank in financial year 2001-2002. Profits from the segment as a percent of revenues stood at 23.44 per cent last year. The national banking group and domestic treasury operations had profitability standing at 8.27 per cent and 5.26 per cent respectively.

Since the corporate segment turned in losses of Rs 41.9 crore in the third quarter, compared to a profit of Rs 137.13 crore last year, SBI's overall profitability was impacted adversely. Company officials attribute this to weak demand for corporate loans in the third quarter.

"Some corporates (oil companies) had witnessed inflow of funds as some of the bonds they were holding matured towards the end of the second quarter because of which they were slow in availing overdraft facilities," said a company official.

Besides, the bank follows a transfer pricing mechanism where the costs are allocated to the various segments irrespective of the amount of business they bring in. This led to the losses in the corporate segment.

However, company officials and analysts contend that the bank has managed to achieve healthy disbursals for working capital needs. The bank has also been fairly successful with its new short-term product, termed as working capital demand loan, launched in recent times.

Aimed at financing the short-term working capital requirements of companies, the bank has disbursed Rs 4,000 crore in the current quarter. The product is likely to improve net interest margin