Sbi Profit From Forex Business Slips To 17.5%

In spite of a rise in the number of customers for its inter-bank foreign exchange business, State Bank of India's (SBI) profits for the division is falling on increased turnover over the last number of years.

Bank officers say it is mainly owing to decisions taken by the management on the operational front.

Between 1996 and 2001, SBI's share in the total foreign exchange business has declined from 22.04 per cent to 17.5 per cent. Over the same period, the industry saw a 12.94 per cent rise in the number of customers, while for SBI it was only 4.32 per cent. SBI's share in the total forex business was a small at 9.37 per cent.

 

The bank has the advantage of mutually squaring off its debit and credits. This allows for an internal spread and a margin which theoretically should allow the bank to win over competition.

SBI, however, enters the market for outright sale, purchase or for swap, and it appears that the bank loses out in the inter-bank market to foreign banks.

It, thus, fails to obtain reasonable cover rates for the merchants. This in turn decreases its competitive advantage in the customer market.

SBI reported a Rs 278 crore profit in 2000-01 against a $40.1 billion business. This works out to a six-paise per dollar margin. Officials said: "This does not necessarily mean that the margin arises because its rates are competitive. Its internal cushion, arising out of its set-off positions, should be at least 10 paise. Its card rates, applicable to low-value customers, usually keeps a cushion of around 17.5 paise on an average. This is inconsistent with a six-paise margins being currently provided."

Last fiscal, the division registered a Rs 85 crore fall in profits over the previous fiscal, thus, says officials from the bank, "The basic purpose of increasing its profits to desired levels was not served. The forex business of foreign banks on the other hand registered increased profit at the expense of SBI."

In a bid to bring down its brokerage cost, the bank is losing on profitability. There is a direct correlation between falling profits and reduced brokerage over the last six years. Expenses on brokerage has come down from Rs 1.28 crore in 1995-96 to Rs 0.6 crore in 2000-01.

Profits also slipped. Its profit was Rs 713 crore in 1995-96 which came down to Rs 278 crore in 2000-01.