Financial Analysis: SBI fares well in the fourth quarter ending 2020

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The banking giant State Bank of India (SBI) has declared its financial results for the fourth quarter ended March 31, 2020.

The following is the analysis of its High Lights (HL) and my reaction on each of it:

HL: For the fourth quarter SBI posted a net profit after tax of Rs.3581 crore. But it includes proceeds due to sale of a stake in sister concern SBI Cards Ltd for Rs.2731 crore.

Comment: Excluding the sale of a stake in SBI Cards Ltd net profit was Rs. 850 crore (3581-2731). It is a good sign. Selling of stakes in SBI Cards Ltd and SBI Life Ltd may be part of privatising SBI in future as per instruction of Central Government. By selling another 10% shares they become private companies.

HL: The provision made for NPA by debiting profit & loss account for Quarter four was Rs.14,884 crore compared to Rs.16,095 crore during last year fourth quarter.

Comment: It is some improvement compare to last year same quarter. But on the other side of the coin, the accounts slipped to NPA during Q4 of 2019-20 was Rs.8105 crore compared to Rs.7505 crore in the corresponding period last year.

HL: Net profit for 2019-20 full year was Rs.14,488 crore compared to Rs.862 crore in 2018-19.

Comment: Net profit increased in absolute terms excluding the sale of shares in SBI cards and SBI Life. So SBI posted better actual profits compared to 2018-19. So the share increased by Rs.10 rupees.

HL: Deposits increased to Rs.32.01 lakh crore on 31-3-2020 compared to Rs.29.11 lakh crore with a growth of 11.34 %.

Comment: Deposit growth rate is just satisfactory compared to the private banks’ growth rate of 15% to 20%. Any how growth is good.

HL: Advances increased to Rs.24.22 lakh crore on 31-3-2020 compared to Rs.22.93 lakh crore on 31-3-2019 at 5.64% growth rate.

Comment: Advances growth is mainly due to growth in retail loans and a marginal reduction in Corporate loans.

HL: Home loans increased to Rs.4.55 lakh crore on 31-3-2020 compared to Rs.4.00 lakh crore on 31-3-2019.

Comment: we have to appreciate the growth in Home Loans by Rs.0.55 lakh crore in a year. It constitutes 13.88% of total advances portfolio. Very good by any standard.

HL: CASA was 45.16% of total deposits on 31-3-2020 which was marginally less than 45.74% on 31-3-2019.

Comment: Maintenance of Current Accounts and Savings Accounts at above 45% is good as no interest paid in the current account and 3% only in SB.

HL: Operating profit was Rs.68,133 crore for 2019-20. It increased by around 10% compared to the previous year.

Comment: Increase in operating profit is a well come sign. But provisions for bad loans debited later was Rs.42,776 crore. Hence net profit for 2019-20 came to Rs.14,488 crore. If the bank makes recovery in these accounts of NPA next year profit zooms up.

HL: Capital Adequacy ratio was 13.06%

Comment: Required CAR was 9% only as per norms for next year no capital infusion will be there by Central Government. It is a good ratio.

HL: Gross NPA was Rs.149,092 crore and net NPA (after making provision) was Rs.57,871 crore at 2.23% of total advances.

Comment: Gross NPA was 6.15% of total Advances. It shall be brought to less than 5%. SBI has the capability to achieve it. 1% reduction in Gross NPA brings an additional profit of Rs.3000 crore.

General observations and suggestions

  1. SBI has to keep 18% of deposits in Government bonds for SLR and 3% for CRR with RBI. So a maximum of 80% of deposits could have been given as loans. That means another Rs.1.50 lakh crore loans should have been given.
  2. The recovery by EMI in a year in Home loans will be Rs.65,000 crore minimum. So that much additional loans to be given aggressively to maintain good profits.
  3. Income by processing charges to Corporate loans is very small. I had seen for a BG limit of Rs.2000 crore processing charge was Rs5.00 lakh only. It should be 0.5% of the limits. Other income to be increased like this. For all Zonal office and Local Head office sanctions processing charges more compare to Head Office sanctioned huge loans.
  4. BG commission for huge limits was hardly 0.5% to 0.75% only. Whereas mid-cap borrowers were paying BG commission of 1.5%. So the bank is losing huge BG commission from corporate accounts.
  5. Pensioners branches to be created separately in all top 10 metros, to give better services to other customers. Say in Hyderabad city pensioners branches at ECIL, Nampally, Kukatpally, Uppal and Dishukhnagar to made by transfer of accounts.
  6. More Foreign branches to be opened say 25 in the next two years in America, UK, Mexico, Germany and South Africa. This is the time to grow.
  7. Clerical employees promotee can become at the maximum AGM only. Many knowledged and intelligent people are retiring as AGMs only. This to be changed as many young persons are becoming DGM and GM by 45 years only being officer recruitment directly. Proper exposure is required in all fields of banking.
  8. Forex bills discount realisation to be verified by retired Forex Officers to avoid frauds.

Hopefully, the SBI would grow from strength to strength.