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State Bank Of India - Bouncing Back Again

| 5/31/2012 9:04 PM Thursday

Over the past one year, State Bank of India, the country’s premier public sector bank, has emerged strongly from its slump and a spate of problems to register thumping profits. Vidrum Mehta tells us more.

Key Points:

  • SBI’s March 2011 quarter numbers came in as a major disappointment, but exactly a year later, it showed a remarkable improvement in its March 2012 quarter numbers.
  • The bank has shown remarkable improvement in its asset quality, with its Gross NPAs and the Net NPAs decreasing on a sequential basis.
  • With the government infusing Rs 7900 crore as capital and with the help of internal accruals, SBI’s capital adequacy ratio (CAR) has improved and stands at 13.86 per cent as on March 31, 2012.


It has been almost a year since the top management of India’s largest bank underwent a change. On April 7, 2011, Pratip Chaudhuri was given the charge of leading State Bank of India (SBI) as its Chairman. Chaudhuri joined SBI 37 years ago as a probationary officer, and has now reached the top position. After his elevation to the top, SBI has been on the radar of investors, who have been keenly watching his moves in steering the bank forward.

The first major announcement that the bank made after Chaudhuri took over as Chairman was that of the March 2011 quarter numbers, which came in as a major disappointment. On a standalone basis, the bank had posted a meagre net profit, down 99 per cent to Rs 21 crore on the back of higher provisioning of Rs 4156 crore. On the day of the result, the scrip tanked almost eight per cent. However, exactly a year later, the bank showed a remarkable improvement in its March 2012 quarter numbers, resulting in the share price inching up by almost five per cent on the day the results were declared.

In the last one year, a series of news items have kept the bank in the limelight. From Moody’s downgrading its financial strength rating, to its exposure to Kingfisher Airlines and the lack of clarity on capital infusion, a host of factors have plagued the SBI stock. All of these put together impacted the stock so badly that it lost its status as the most valuable financial company (albeit for a brief period) to HDFC Bank. With this, the scrip took a beating and declined almost 42 per cent in CY2011.

In 2012 though, it has recovered smartly to appreciate by around 24 per cent. The bank has posted robust numbers for the March 2012 quarter, which has caught our attention. Here, we present an analysis of the results of the bank for the March 2012 quarter, which should provide a sense of where the stock is headed.

On a standalone basis for the March 2012 quarter, SBI’s Net Interest Income increased by 44 per cent to Rs 11591 crore on a YoY basis. The bank posted a net profit of Rs 4050 crore against an estimate of Rs 3580 crore. For the same quarter last year, the bank had posted a meager profit Rs 21 crore, mainly due to the higher provisioning. Hence, comparing its bottomline with that of the corresponding quarter last year would not give us a fair idea. However, a comparison of other key financial parameters should tell us about the bank’s financial position.

 

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