Banking Challenge?!

State-run banks are not behind in profitability either (see ‘How PSB’s managed to beat the slowdown’ on pg 78). If you compare the Q3 earning reports of major banks, the obvious gets reiterated. PSBs have increased profitability (in net profit, PSBs showed an increase of 48.4% in net profits as against an increase of 25.4% for private banks during Q3’08), improved asset quality and lowered their bad debts (or non-performing assets – NPAs – if you please). The largest state-run entity SBI, for instance, despite the challenging market conditions, reported a net profit of Rs.37.14 billion, an increase of 52% against Rs.24.42 billion in the third quarter of the last fiscal, while the largest private lender ICICI Bank reported a net profit of Rs.12.72 billion, a modest growth of 3.41% compared to Rs.12.30 billion in the third quarter of 2008. And the better returns are despite the social service placards that hang around every PSB’s neck like the proverbial noose! As per a Motilal Oswal Report the Q3 results, “demonstrate the pricing power enjoyed by banks, especially state-owned banks, which posted higher yield on loans and strong fee income in the quarter.”

So Alan Greenspan, once the high priest of capitalism and recently converted supporter of nationalisation (of BoA and Citibank) can gleefully point toward the valuation charts of SBI, ICICI, HDFC Bank or indeed even Citibank to convince his detractors of his new stance. The Indian stock market has put a higher valuation to state-run SBI as opposed to others. While ICICI’s market cap rests at Rs.37,906 crore and HDFC has gravitated to Rs.36,756 crore, SBI sits pretty at almost double the valuation at Rs.65,885 crore. If the proof of the pudding is in the eating then SBI’s eminently edible now! Small wonder that even corporates are rethinking their options. During the last nine months, Infosys Technologies drastically reduced its deposits with private & foreign banks, parking money with state-run banks instead. When Ratan Tata wanted to finance his expensive Corus deal, SBI cleared $1billion in 5 minutes flat! Did someone say PSBs are slow on their customer response?

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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