It was a hot Tuesday afternoon, with markets trading flat when one of the biggest shocks of the recent time for Indian Stock Market came storming in.
State Bank of India, the largest Indian bank came out with utterly disappointing financial numbers for Q4 FY11.
The Profit After Tax (PAT) tumbled a whopping 99% y-o-y to a meager Rs 20.8 crore, and Stock reacted quickly and crashed nearly 8%.
The company and the whole banking sector itself was feeling the heat for a time since RBI has been raising key policy rates to curb soaring Inflation. The Apex body of banking has raised interest rates for the 9th time since mar 2010. In latest policy meet on May 3 they have also raised the interest rate on savings bank accounts by 50 basis points (bps), or half a per cent, from 3.5% to 4%. This key policy change might bring some smile to a large no. of account holders but it will certainly hit Net Interest Margin(NIM) of Banks, and SBI is is not spared either in fact it will suffer the most because of large base of Savings Account in its overall deposits.
The Net interest income(NII) was up 20% y-on-y to Rs 8058 crore, along with Net interest margin falling 31 bps to 3.3% in Q4, FY11.
The biggest reason for this shocking Financial performance by this PSB major is higher provisioning, It made a provision of Rs 4157 crore versus Rs 2349 crore a year ago. Out of total provision, the bank has earmarked Rs 3264 crore for NPAs as against Rs 2187. Gratuity provision rose to Rs 1565 crore as against Rs 46 crore in FY10.The company’s provision for NPAs was up 49% at Rs 3,264 crore versus Rs 2,187 crore, YoY. Its gross NPA at 3.28% versus 3.05%, YoY. Its net NPA was at 1.63% versus 1.72%, YoY. The Reserve Bank of India has mandated that banks must reach provisioning coverage ratio of 70% for the NPAs recorded till September, 2010. (Data Taken from Major Financial portals)
The road forward for SBI is also ain’t smooth with similar kind of provisioning expected in quarters to come the Stock may remain under-performer and lose out on the traders interest.
My view still remains the same, for an investor looking for long term opportunities the recent crash in stock price has only sweeten the deal, so go ahead and by in truck-loads.
In other major development, The Govt. has increased upstream share to 38.5% of total subsidy burden of about Rs 77922 crore for FY11, Now the Upstream companies like ONGC will have to bear burden of Rs 30,000 crore in FY11, when i first saw the news i thought i should not react to it as in my whole life i have never Invested or given any kind of investment recommendation to anybody for ONGC (used to be the biggest PSU, now sharing the spot with Coal India and IInd largest listed firm, now coal India and TCS catching up).
A company of this scale and size, was never an investment opportunity according to me, This gem of an company has been turned into stones by we Indians only, As quoted by an investor “ONGC is the victim of most absurd petroleum products pricing, subsidizing and misusing activities of Indians.” First we will put up alcohol like tax on petrol and diesel only to increase under-recoveries and then subsidized it by taxmen money and put financial pressure over Fortune 500 companies like ONGC and IOC.
why an ordinary taxpayer pay the price of the diesel used in electricity gen. sets and in luxery diesel sedans.