How are the Associates of State Bank of India Performing?

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Associates of State Bank of India

State Bank of India, Mumbai
State Bank of India, Mumbai | Source

Associates of State Bank of India

SBI itself is not in the pink of health

State Bank of India is not in the pink of health now. It has many problems like rising interest rates, slowdown in the Indian economy, recessionary trend in the USA and European countries, inadequacy in Tier-I Capital, sluggish capital markets that may thwart its attempts to garner funds from the public and low employee productivity. But the bank has several plus points also. It is the largest bank in India with a network of more than 10000 branches spread all over India. It has the highest rural penetration in India. It is the government’s bank and gets funds easily. It has the largest overseas network along with ICICI Bank. SBI also has associate banks and has forayed into life insurance business. It also has a mutual fund subsidiary. It also has a private equity firm called SBI Macquarie. How are they doing right now?

SBI Macquarie

SBI Macquarie came into news recently when it was said to be backing port operations company Ocean Sparkle’s acquisition of Tag Offshore, a marine support services company based in Mumbai for Rs.400 crore. Ocean Sparkle is India’s largest harbour tonnage company and offers services like mooring, pilotage and transhipment in nine out of twelve major ports in India. SBI Caps has reported that cross-border acquisitions by companies are on the rise. In January-October, it piloted 120 outbound and 105 inbound deals. Indian companies are making the most of the global economic sluggishness and acquiring at low prices properties and other companies. Most of the acquisitions by Indian companies abroad are in the sectors of Information Technology, Pharmaceuticals and Automobiles.

State Bank of Hyderabad

State Bank of Hyderabad is planning for a pan-India presence. This was stated by Bhagavanantha Rao, it’s Managing Director. The bank has an existing branch network of 1403 and wants to add around 100 more by March 2012. The bank wants to shed its image of a Deccan region bank. The bank’s rising NPAs is the result of macro economic environment. But it need not worry as the government of India has assured all the banks to recapitalise adequately. NPAs have doubled from 0.9% to 1.8% due to interest rate hike. Borrowers find it difficult to service the loans they availed and hence many loans are becoming NPAs. This is a widespread phenomenon for the Indian banks now. The bank is trying to increase the tenure of the housing loans and keeping the EMI (Equated Monthly Instalment) at the same old level. The bank has financed Rs.700 crore to 96000 self help groups so far and the number is set to cross one lakh soon. Right now, there are no moves to merge the bank with SBI. The bank has launched a unique “Swarna Ganga” gold coin scheme in its Dwarakanagar branch premises. It has a carato meter. Customers can check the purity of the gold. They can even bring gold purchased from any other bank or jewellery shop for the purpose. The bank has tied up with Heritage Foods for dairy loans. The bank expects to generate a business of Rs.75 crore out of the dairy loans. These loans will come under priority sector advances. The bank is also eyeing salary accounts of corporates.

State Bank of Mysore

State Bank of Mysore’s Q2 net profit has dropped by 17% to Rs.77.78 crore from Rs.93.36 crore in the corresponding period of the previous year on higher provisioning for the NPAs. The bank added nearly Rs.400 crore towards provisioning for NPAs this quarter as NPAs are fast rising. But the bank need not worry about the rising NPAs as the government of India has assured all the banks to provide capital. Indian Bank’s entire net worth was wiped out because of NPAs. But the government of India took care of it and provided full capital. Therefore banks operating in India need not worry about NPAs. The bank is also impacted by high cost of deposits. RBI raises interest rates periodically in the name of attacking inflation. This affects the growth of the economy and also makes cost of funds dearer to the banks. The bank keeps its net interest margin healthy at 3.16%.

State Bank of Travancore

State Bank of Travancore’s H1 net profit has declined by 18.25% to Rs.256.20 crore from Rs.313.40 crore in the corresponding period of the previous year. The net profit was affected because of higher provisions for both standard assets as stipulated by the RBI and also by the rise of the NPAs. Gross NPA stood at 2.84% as against 2.02% a year ago. Net NPA increased from 1.17% to 1.77%. The bank will be able to meet RBI requirement of 70% of provision coverage ratio. The bank could post only moderate growth because of higher interest rates prevailing. Net interest margin stood at 2.63% as against 2.86% in the corresponding period of the previous year. Cost of deposits increased by 1% to 6.56%. Yield on advances increased by 1.1% to 10.54%. The bank should try to increase its net interest margin to more than 3%. Capital to Risk Weighted Assets Ratio (CRAR) stood at 12.18% as against 12.93% in the corresponding period of the previous year. RBI has stipulated a minimum ratio of 9%. The bank is waiting RBI node for starting gold loan branches. Out of the 15 branches planned, 14 will be in Kerala. Gold loan is a very profitable business. The Kerala-based companies Muthoot Finance and Manappuram Finance are the leaders in gold loan financing in India. The bank is confident that it is equipped to deal with direct cash transfers of subsidy amounts to families below poverty line as and when the rules are amended by the government of India. The bank’s business crossed Rupees one lakh crores this fiscal year.

SBI Life

SBI Life has introduced ‘Hospital Cash’ plan. The plan’s everyday hospitalisation cash advantage is available for a fixed policy term of three years. Additional capital infusion is unlikely for SBI Mutual Fund this year. SBI itself is in need of capital infusion to the tune of Rs.7800 crore during the current fiscal year and Rs.40000 crore in the next five years. SBI Life is eligible for an IPO (Initial Public Offer) as per the IRDA guidelines as it has already completed ten years of operation. For the first quarter, SBI Life recorded a net profit of Rs.144 crore which was 27% higher than the net profit of Rs.114 crore in the corresponding period of the previous year. SBI holds 74% stake in SBI Life Insurance. The remaining 26% is held by BNP Paribas Cardiff. IRDA has slapped a fine of Rs.70 lakhs on SBI Life for making unauthorised payments amounting to Rs.204 crore to various banks. Out of this amount, Rs.186 crore was paid to State Bank Group between 2005 and 2010. This shows that SBI Life is not a professionally run insurance company and this will affect it when it comes out with an IPO.

SBI Mutual Fund

SBI Mutual Fund has launched several schemes. Its Gold Fund has become very popular among the investors in view of the increasing price of gold. The plan is designed in such a way to enable the investors to invest through a single investment or through a systematic investment plan (SIP). Minimum amount that can be invested is Rs.100. The corpus was invested in SBI GETS which has given returns of around 28%. Its returns are 36% higher than BSE Sensex returns.

State Bank of Bikaner & Jaipur

State Bank of Bikaner & Jaipur is focusing on customer-friendly initiatives and widening its branch network. It is planning to introduce tailor-made products for specific sectors. Shiva Kumar is the Managing Director of the bank. The bank is viewed as a Rajasthan-based regional bank. Now it wants to spread its wings to other States also. The bank has 925 branches. Out of this, 750 are located in the State of Rajasthan. The bank has not got many young employees. Only aged and experienced people welcome the customers at the counters. Now the bank wants to recruit 2000 clerks and 1000 probationary officers this year. The bank is aiming to achieve 18% business growth this year and is not experiencing any credit slowdown so far. The bank is planning to tap high net worth individuals for its various retail products. The bank is tying up with nearly 200 car dealers to finance high value private vehicles. The bank has achieved a net interest margin (NIM) of 3.43% for the first quarter which is commendable. The bank has shed high cost deposits to the tune of Rs.4000 crore.


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