 "Exceptional knock to SBI's earnings for March 2011")
No sooner than the new chairman Pratip Chaudhuri took charge at the State Bank of India from O P Bhatt, he has initiated a ‘clean up’, a term the management does not wish to use.
 The stock market has to adjust the earnings multiple it gives to SBI. Photo by Pete Gibbons
The bank has provided for revision in the pension and gratuity of employees in line with the revised pay commission of the government of Rs 2,473 crore. SBI has also decided to pay more tax for the year as the income tax authorities do not recognise additional provisioning for tax calculation. The bank has also provided for an additional 2 percent of the total portfolio for teaser loans. This has resulted in an additional provision of close to Rs 3,000 crore that no analyst had estimated. An additional tax liability and the tax provision meant that the company’s net profit fell to Rs 20.9 crore for the quarter ended March 2011 from Rs 1,867 crore in the year-ago period.
Analysts estimated the earnings per share (EPS) of the bank at Rs 175. The bank has reported a consolidated EPS of Rs 168. In that context, the stock market has to adjust the earnings multiple it gives to the largest bank in the country. SBI shares fell 7.8% to Rs 203. According to a fund manager, the bank has shed an estimated Rs 120 of its book value. The expected book value for the financial year was Rs 1,176. It will now be close to Rs 1,050.
The bank’s capital adequacy ratio fell 11.98% from 13.39% according to Basel II norms for international banking. The SBI management is confident that the government of India will fully subscribe to the equity rights issue that it plans to complete during the year.
“The government is committed to a well-capitalised SBI,” Pratip Chaudhari, SBI chairman said.
The bank expects to improve net interest margins (NIM) going forward. NIM is the difference between average cost of borrowing and lending of the bank and reflects the operating efficiency. SBI’s NIM stands at 3.32%. The bank recently hiked its short-term deposit and lending rates in order to maintain the margins.
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