Rolling up sleeves
The SBI management sets tough targets for financial year 2004-05
| The management is concerned about declining market share in both advances and deposits. SBI's share of advances fell around 20 per cent in FY01 to 17.2 per cent last December, while its share of deposits dropped from 21.8 per cent in FY01 to 19.2 per cent in December 2003. |
| The bank's net interest margin is under pressure, while new non-performing assets added this year are estimated at Rs 5,200 crore, on top of Rs 4,688 crore last year. Fee-based income has been nothing to write home about, growing 11.32 per cent in the nine months to December 2003. |
| To meet these challenges, the bank management plans to increase the share of savings and current account deposits to lower costs and increase net interest margin. At the same time, the bank wants to increase advances and fee income to offset the effect of low interest margins. |
| For FY05, the bank has set a target of at least 23 per cent for net profit growth (growth was 18.6 per cent in the 9-month period to end-December 2003), net interest margin of 3.1 per cent, return on equity of more than 20 per cent, net NPAs less than 2 per cent, and growth in non-interest income of at least 20 per cent. |
| For the 9-month period to December 2003, net interest margin was 2.87 per cent, net NPAS were 2.88 per cent and return on equity was 18.7 per cent. |
| To increase market share, the bank management has advised its offices that at least half of the growth in advances should come from new business and not from enhancing the limits of existing customers. Retail lending is being emphasised, with housing loan growth projected at Rs 6,000 crore. |
| For the first nine months of FY04, housing loans increased by Rs 3,000 crore. The gross NPA ratio, estimated to be around 7.5 per cent by the end of this fiscal, is targeted to come down to 5.5 per cent by March 2005. |
| The idea is to use manpower rendered surplus from computerisation as sales and marketing personnel. The bank plans to create marketing hubs and cells focusing on retail banking. The bank has also drawn up an ambitious plan for its international banking business, with the number of foreign offices to be increased to 75 by the end of FY05. |
| Foreign branches are expected to contribute 15 per cent of the bank's profits by the end of FY06, compared to an estimated 6 per cent this year. |
| The issue of steel prices |
| The government has reduced the excise duty on steel from 16 per cent to 8 per cent, and it has also cut the import duty on key inputs such as coking coal, non-coking coal, and pig iron. |
| The move was expected to bring about a reduction in the domestic prices of hot-rolled coils (HRC). This has, however, not happened. There are a number of reasons for this. |
| Dealers of HRC had built up large inventory levels in anticipation of a further hardening of prices. HRC prices had already risen in the third week of February by Rs 4,000 per tonne to about Rs 27,000 on the back of surging demand. |
| The problem is, dealers who bought HRC under the old duty structure are unwilling to lower prices until this inventory is liquidated. The revised duty structure is applicable for products manufactured from February 28. |
| The developments have, however, left end-users confused about the pricing structure of steel products. As a result, the volume of steel purchased through retail trade has dropped considerably. |
| But since manufacturers have not yet announced lower HRC prices, analysts point out that steel mills could be viewing the import duty cut as the first sign of easing of pressure on their supply chain costs. |
| Prices of key inputs for the steel industry have risen sharply in the last 12 months, threatening the viability of the industry. Coke prices had increased 300 per cent in the less than one year and in the case of iron ore it was 200 per cent. |
| It appears that manufacturers may pass on the benefits of a lower duty structure to the users only when they are confident that their costs have stabilised. In the interim, steel prices could continue to remain high. |
| With contributions from Amriteshwar Mathur |