Analyst Meet / AGM - Analyst Meet

17-Feb-2014, 03:37
State Bank of India conducted an analyst meet on 14 February 2014 to discuss the financial performance for the quarter ended December 2013 and prospects of the bank. Arundhati Bhattacharya, Chairman of the bank addressed the meet:

Highlights:

Bank has started to follow a strategy of four-pronged approach, which consists of four focus areas such as (a) NPA control, (b) Cost control, (c) improve other income and (d) raise productivity.

(a) NPA control

• Bank has decided to move stressed assets recovery branches reporting to the national banking group (NBG) to Stressed Asset Management Group (SAMG)
• SAMG of the bank was managing about 12.5% of the total NPAs earlier, mainly hard for recoveries.
• Bank has created new four General Manager positions for south, east, not and west regions to enhance the stressed asset monitoring, which is asked to report to the SAMG.
• All bad loans that are hard for recoveries are transferred to SAMG from stressed asset recovery branches.
• Bank has started focusing not only on existing bad loans, but also the assets which are beginning to show stress and likely to slip into NPA category.
• Bank has constituted various committees to monitor bad loans as well as likely bad loans. Chairman of the bank is heading the committee looking after all accounts of above Rs 500 crore exposure, while senior MD&GE (Corporate Banking) is heading the committee taking care of accounts with the exposure of Rs 100 crore to Rs 500 crore. The committee under SAMG head is overseeing the account of Rs 50-100 crore, circle CGM has to head the committee looking at accounts between Rs 25-50 crore, General Managers with Rs 5-25 crore and DGM with Rs 1-5 crore. These committees are meeting every week.
• Bank has introduced a technological platform giving early warnings on stressed asset, which is connected to various available industry databases.

(b) Cost management

• Bank is focusing heavily on improving the cost efficiency. It is targeting to reduce overhead, energy and procurement expenses.
• Major initiatives such as internal blog and desktop conferencing has taken, which would improve communication among the employees as well as save transportation cost.
• Bank expects the impact of measures taken to reflect in the performance numbers of Q4FY2014

(c) Improve other income

• Bank is working on levers to generate higher non-interest income.
• Bank is targeting strong growth in recovery in written-off accounts

(d) Raise productivity

• Bank is taking many initiatives to improve productivity.
• Bank has transferred about 819 back-office executives to front office.
• Bank has requested to the Government to raise the limit on incentives for employees to 2% of net profit from existing 1%.
• Bank is planning to revise appraisal system, while improving the HR planning

Performance Analysis

• The performance of the bank was mainly impacted by higher provisions for employment benefits, investment depreciation and deferred tax liability (DTL). As per the bank, excluding the impact incremental provision on employee pensions (Rs 600 crore), investment depreciation (Rs 750 crore) and DTL (Rs 234 crore), net profit was actually higher by 12.42% in Q3FY2014.
• Other income of the bank was boosted by strong increase in forex income and recoveries in written-off accounts. Fees from government business has shown healthy increase, which is expected to maintain strong growth.
• Bank has opened about one crore saving accounts in the quarter ended December 2013. This helped the bank to show sequential improvement in CASA ratio.
• Bank has witnessed marginal decline in deposits market share, as bank raised only US$ 3.07 billion of FCNR deposits under RBI special swap window against the overall banking systems FCNR deposit inflows of US$ 34 billion.
• Advance growth of the bank was mainly supported by retail segment, while the large and mid-corporate segment has shown moderation in growth. Bank has continued to gain market share in home and auto loan segments. About 19% of the growth in the homes loans is contributed by takeovers.
• The growth of the infrastructure advance book was mainly on account of disbursements in the existing sanctions.

Well capitalized

• Capital adequacy ratio (CRAR) of the bank stood at 11.59% at end December 2013, which was higher in January 2014 at 12.71% after Government capital infusion (Rs 2000 crore), QIP (Rs 7977 crore and), and Tier II bond raising (Rs 2000 crore). CRAR was further higher at 13.27% including plough back of 9MFY2014 profits (6023 crore).
• Bank is well capitalized and do not require any fresh capital infusion for next one-two years.
• This would help bank to focus on various other priority things.
• As per the bank, it would require capital raising of around Rs 70000 crore till FY2018. Of this, about Rs 30000 crore and above would be met though internal accruals.

Asset quality

• As per the bank, the impact of economic slowdown mainly impacted the mid-corporate segment showing sharp slippages of advances.
• Bank believes that the asset quality stress would show improvement two quarter after the GDP growth shows improvement.
• Bank expects the GNPA ratio in the international business to rise slightly 1.85% in Q4FY2014 from 1.79% at end December 2013.
• Bank is considering sales of bad loans to Asset Reconstruction Companies (ARCs), and expects significant amount sales during Q4FY2014.
• Standard restructured advances of the bank stood at Rs 39404 crore at end December 2013.
• Bank proposes to raise the provisions on existing restructured advances to 3.5% by end March 2014.
• Cumulative standard restructured advances of the associate banks stood at Rs 20000 crore at end December 2013.
• Bank has the fresh restructuring pipeline of Rs 9500 crore for H12014.

Key ratios

• Bank proposes to maintain NIM steady.
• Bank also intends to improve ROA to at least 1% in the medium term.

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