SBI reverberated today in the wake of the favourable climate in the banking sector and a sustained rally in banking stocks.

The scrip of the largest commercial bank in the country in terms of assets climbed 3.5% to Rs 358.90 early post-noon. It had hit a high of Rs 359.20 earlier, a lifetime high.

Volumes of 16 lakh shares were traded on the counter on BSE in over one-and-a-half hours of trading.

The rally on the SBI counter has been accompanied by a spirited rise in a host of other public sector banks like Punjab National Bank (PNB), Canara Bank, Oriental Bank of Commerce (OBC), Bank of Baroda and Union Bank of India. For instance, OBC has surged 100% from Rs 74.70 on 25 April 2003 to the current Rs 150. PNB has jumped 88% from Rs 100.85 on 23 April 2003 to the current Rs 190. 

The latest rally in banking PSUs has come on the back of plans by banks to return equity to the government. The return of equity will result in reduction of equity, which in turn, will boost earnings and other return on equity ratios.

Meanwhile, on Wednesday, reports surfaced that the government has no plans to demand premium from banks for return of equity as had been reported in a section of the press earlier.

SBI too has witnessed a sustained rally in the last few trading sessions. From Rs 277.60 on 29 April 2003, the scrip has surged 28% to Rs 356. Banking analysts say SBI is quite an attractively valued stock and its FY 2002-03 balance sheet should show a further fall in its net NPAs. SBI is yet to announce its Q4 and FY 2002-03 results.

SBI  is targeting a sharp reduction in net NPAs over the years to  2%  by  March  2005  from  the  current  4.67%. The bank has approached consulting firms and specialists in a bid to recover its sticky loans.

The Securitisation Act has come as a big booster for the whole banking sector. The Securitisation Act aims at speeding up recovery of sticky assets without additional court procedures. It augurs well for the lending business as it will reduce incremental non-performing assets (NPAs) i.e. willful defaults by borrowers may come down drastically.

However, a court case is pending as to whether banks can be allowed to dispose off assets of defaulting borrowers. Pending this clarification, not much recovery is taking place on the corporate recovery front, banking analysts said.

SBI is now focussing on retail lending and it is one of the dominant players in the housing finance market.

Analysts say a key trigger for the SBI counter is the credit offtake – an increase in credit offtake is the key to SBI's  financial performance, it being the largest commercial bank.

For the nine-month period ended 31 December 2002, net interest income recorded a 7% rise to Rs 7210.20 crore. Other income, which includes income from non-fund based banking activities including fees/commissions, forex income and profit on sale of investments, grew 29% to Rs 3533.86 crore. Net profit stood at Rs 2367.45 crore, up 30%.