What lending slowdown? Loan growth at State Bank of India (SBI) was slightly more than 21% during the first 11 months of 2008-09 and indications are that loan growth for the full year would be around 23-25%. Deposit growth has been even more robust, being 30% in the first 11 months of 2008-09. The bank has been gaining market share both in deposits and advances. For example, it accounted for 37% of the growth in deposits and 38% of the growth in loans for all scheduled commercial banks in February. It’s no surprise then that the bank has targeted a growth of 25% in gross advances for 2009-10. What’s more, it’s also targeting a further increase of 100 basis points in market share in both deposits and advances this fiscal. The bank is also giving special attention to home loans, growth in which has been targeted at 33% in FY10.
Also, unlike the private sector where retrenchment has been the norm, SBI has recruited 25,000 people in 2008-09, in what the management has termed “one of the largest recruitment exercises ever seen”.
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That doesn’t mean there’s no room for improvement. The bank is aware that with interest rates coming down, there will be more pressure on margins. There has been a sharp fall in current account balances during 2008-09 which lowered the CASA (current and savings accounts) ratio and raised the cost of deposits.
If the bank’s targets for 2009-10 are to be believed, the management isn’t allowing a little thing such as a slowdown to bother it. Net profit growth is targeted at 40%; it was 31.6% in the first nine months of 2008-09. Net interest margin, which was at 3.15% in the first nine months of FY09, is pegged at 3% for FY10. An increase in the CASA ratio by 300 basis points is targeted to help keep the cost of deposits in check. Growth in other income for the bank in FY10 is targeted at 40%. The bank aims to contain costs and overheads and improve its cost-to-income ratio, thus improving its return on equity (RoE) to 19% in FY10 (compared with 14.1% in the first nine months of FY09). A similar improvement is also seen in the return on assets (RoA) ratio, which is targeted at 1.08% in FY10, against 1.02% as at end-December. Nor is this growth supposed to lead to an increase in bad loans—the target is to aim at a reduction of 30 basis points in the bank’s gross NPA (non-performing asset) ratio. The capital adequacy ratio, which was 13.35% at the end of December, is expected to be 13% by the end of FY10.
True, the bank has toned down its targets compared with the previous year. At the beginning of FY09, it had targeted loan growth of 35.6% and net profit growth of 50%. RoE was pegged at 15.25% and RoA at 1.10%. But the fact that it’s still aiming for a growth of 40% in net profit shows either a conscious decision to aim high or confidence that the slowdown will not have much impact on SBI. Let’s hope that such hubris is not followed by nemesis.
Graphics by Ahmed Raza Khan / Mint
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