SBI Rises on Signing Mou with Gujarat Government

January 12, 2017 - 04:46:16 PM

SBIState Bank of India is currently trading at Rs. 251.85, down by 0.30 points or 0.12% from its previous closing of Rs. 252.15 on the NSE. The stock has been volatile since morning, sometime trading marginally above 0.60 per cent and at times quoting on a negative note. The scrip opened at Rs. 252.90 and has touched a high and low of Rs. 254.45 and Rs. 250.55 respectively. So far 94,38,227 shares were traded on the counter. SBI share price settled below 0.40 per cent at 251.25.

The stock has a face value of Rs. 1 and has touched a 52 week high of Rs. 288.80 on 11-Nov-2016 and a 52 week low of Rs. 148.25 on 12-Feb-2016. Last one week high and low of the scrip stood at Rs. 254.30 and Rs. 244.05 respectively. State Bank of India (SBI), India’s largest public sector lender has signed memorandum of understanding (MoU) with the Gujarat government in order to extend bank credit especially in priority sector. Under this MoU, the Bank will give Rs 30,000 crore worth loans for a tenure of two-years.

With the government telling public sector banks that the capital support needed by them cannot be funded by budgetary support alone, State Bank of India is working on a ‘2 by 20’ plan to grow business under its own steam.

Over the next few years, India’s largest bank will look to acquire return on assets (ROA) of 2 per cent and return on equity (ROE) of 20 per cent in a bid to become independent for capital, generating enough surplus to be able to register an annual growth of 15-17 per cent. SBI’s ROA and ROE have seen a steady decline Y-o-Y on the back of increasing provisioning for bad loans.

SBI’s ROA slipped from 0.73 per cent in the September 2015 quarter to 0.44 per cent in the September 2016 quarter. In the same way, ROE dipped from 12.61 per cent to 7.38.

In the last five financial years, SBI has been given capital infusion aggregating Rs 21,267 crore from the government. Further infusion of Rs 7,575 crore is anticipated in the ongoing financial year.

As long as the government keeps the funds tap open, they will not have a problem. But given that the government can give only so much in the future, they need to prepare themselves to attract private investors, who will closely look at ROA and ROE. Besides, investors will also place a premium on a higher provisioning coverage ratio (PCR) and low cost-to-income ratio (CIR). SBI offers a wide array of services in the Personal Banking, Agriculture/Rural, NRI services, SME and Corporate Banking etc.

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