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Thursday, June 02, 2005

SBI close to joining billion-dollar club (Economic Times)

SBI close to joining billion-dollar club  (Economic Times)  TIMES NEWS
NETWORK[ SUNDAY, MAY 29, 2005 09:04:20 PM] Surf 'N' Earn -Sign innow
MUMBAI: State Bank of India is only a few crores away from becoming a
billion-dollar-profit company. The country�s largest bank has reported a
standalone net profit of Rs 4,304 crore ($989m) for FY05. SBI�s
consolidated profits had already crossed the $1-bn milestone last year
with group profits of Rs 5,463 crore. SBI will be joining the ranks of
ONGC, SAIL, NTPC and Reliance Industries, which have reported net
profits of over $1bn. Indian Oil Corporation, which is yet to announce
results, is also seen as becoming a billion dollar company in FY05.
SBI�s $1bn profit may appear humungous in India, but it is in fact
tiny when compared with the earnings of some of the big banks in the
global market. Citigroup has a net profit of $17bn. Bank of America, one
of the top three banks in terms of market capitalisation, made a profit
of $14bn in December �04. HSBC, which comes close to matching SBI in
branch network (8,000 branches), had reported a net profit of $11.8bn
for �04. SBI, which during its pre-independence days as Imperial Bank,
was one of the largest banks in Asia. It is now working on regaining
its lost glory. This year, when the bank celebrates its bicentennial
anniversary, the bank will embark on �Project Vijay� that will put India
on the global banking map. �The bank has drawn an ambitious plan
to be in the league of big banks called Project Vijay. By �08, SBI plans
to rank itself among the top 50 global banks and among the top five in
Asia in terms of assets and Tier I capital,� SBI chairman A K Purwar
said. Tier I capital consists of equity capital and ploughed back
profits. Currently, it does not figure among the top 50 in the Fortune
500 list of global banks. In fact, three Chinese banks figure in the top
50 banks� list. Mr Purwar said that Project Vijay will be achieved
by organic and inorganic growth. But to achieve this, it will surely
require a lot of money. For instance, HSBC made 110 acquisitions in the
last six years at a whopping cost of $55bn to grow big. Mr Purwar
said that SBI plans 3-4 acquisitions of small to medium size banks and
scale up operations overseas, besides opening more branches overseas.
Internationally, however, inorganic growth has been the key approach by
banks to expand their balance sheet. SBI groups assets base at
$126bn in March �04 was closer to that of HSBC�s ($125bn) in 1975. HSBC
has now grown 100 times to $1.27 trillion as on December �04, mainly
through acquisitions. In terms of net worth, SBI�s Rs 25,000 crore
is just over $5.7bn, which is almost a fourth of that of Industrial and
Commercial Bank of China, which ranks 25 on the world list. The bank�s
market cap of $8bn places it among the top 10 in the Indian stock
markets, but is still less than Citigroup�s profit. In fiscal
�04-05, higher depreciation on treasury portfolio of Rs 2,287 crore, as
against Rs 487 crore last year, took a heavy toll on bank�s bottomline
and as a result it missed the $1-bn mark. But the bank seems very
optimistic about fiscal �05-06, the year in which it may reap the full
benefit of Voluntary Retirement Scheme (VRS) by saving Rs 354 annually.
It had provided for final instalment of VRS, Rs 354 crore in FY05. Also,
the high cost RIB will mature this year in October �05, which will help
it bring down cost of funds from 5.11% to 4.7%. This will improve its
spreads and thereby boost the bottom line. With a largest customer
base and highest market share of 25%, a massive geographical spread of
1,400 domestic branches and 5,200 ATMs; and offices in 32 countries, SBI
group yet has still has a long way to go. While SBI celebrates its
bicentenary year in FY06, it will be a year to watch.


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