Shobhana Subramanian: Growth at a price

Shobhana Subramanian / Mumbai May 26, 2008, 5:24IST

Since half of SBI's loans were made in the last 3 years, a sharp hike in NPLs is a possibility.
State Bank of India Chairman OP Bhatt is a man in a hurry. Although he has five years at the helm of India's biggest bank by assets, Bhatt wants to capture as much as he can and as quickly as possible. Last November, he said he wanted SBI's balance sheet to grow from $150 billion (Rs 600,000 crore), at the time, to $250 billion (Rs 10,00,000 crore), in the next couple of years. By the end of the March 2008, SBI had already hit a balance sheet size of Rs 720,000 crore, which meant it had clocked a brisk 28 per cent growth in FY08.

But, in the meanwhile the environment too has deteriorated. So much so that the central bank too doesn't really want credit, for the banking industry, growing beyond 20 per cent in FY09. By trying to force the pace, SBI may just end up compromising profitability. In a year when retail loans didn't find too many takers, SBI's asset book stands out, growing as it did well above the industry average, though by the end of the year, even SBI had some trouble finding customers.

Between April-December 2007, SBI's assets grew 26 per cent versus 22 per cent for the banking industry. Whether it was auto loans (up 30 per cent) or advances to SMEs (up 26 per cent) or even personal loans (up 19 per cent), the bank was determined not to be outdone. Even in the home loans space, its run rate was far higher than that of the industry, though the pace tapered off to about 19 per cent compared with 20 per cent-plus a year back. ICICI Bank's retail loan growth in FY08 was 3 per cent net of sell-downs.

Interestingly, Lehman Brothers estimates that more than half of SBI's current outstanding loans were made in the last three years. The growth may have come at a cost. NPAs are up and net interest margins are down - from 3.2 per cent in FY07 to 2.8 per cent in FY08. Profits look healthy but may not actually be so. Q4 profits of Rs 1,883 crore included Rs 900 crore of IT refunds and pension writebacks - take this into account, and profit before tax actually fell 27 per cent. With the bank having reduced the prime lending rate (PLR) earlier in February 2008, it couldn't charge its customers what it should have, though the cost of money stayed high.

Source:
http://www.business-standard.com/