Sbi Emerges Unscathed

The slack demand for credit last year shows up in the small 6.2 per cent growth in aggregate advances. Indeed, for most of the first-half of last year, SBI had reported negative credit growth over the levels of March 31, 1996. However, interest earned shows a whopping increase of 15.37 per cent: from Rs 12,959 crore as on March 31, 1996 to Rs 14,951 crore last year. This could mean that SBI has reshuffled a significant bulk of its advances portfolio to assets at the far end of the interest rate band over prime lending rate.

Though SBI has been able to report an increase in the average yield on advances from 12.17 per cent to 13.43 per cent in 1997, in the long term the strategy could backfire. High yielding assets carry a correspondingly higher risk of turning non-performing and it should come as no surprise that the level of non-performing assets at SBI increased by 0.7 percentage points last year. Most other banks are reporting an improvement on the NPA front.

But in times of falling interest rates, it is to be expected that depositors would latch on to longer deposits. Indeed, interest expended (on deposits) shows a 16.6 per cent jump whereas the level of aggregate deposits increased by 15.1 per cent. Coupled with SBIs claim that the share of personal deposits in the total deposit mix increased by 22 per cent, this could mean a shift in the deposit profile towards longer maturities and higher rates.

Despite lower other income, SBI has returned a phenomenal 60 per cent increase in net profits. This is largely out of the higher interest realisation on advances, and because the banking behemoth could contain its operating expenses. Also, there has been a decline in the provisions and contingencies, primarily because the bank would have made lower allowances towards depreciation of securities.

With yields dropping, SBI has been able to mark to market 70 per cent of its securities portfolio as against 65 per cent last year, but the quantum of depreciation provided has been lower.