State Bank of India edged higher on Monday, though the scrip slipped from its higher levels.

The stock of the country's largest state-run commercial bank was up by 1.6% at Rs 287 on the BSE by the first half of the trading session. The stock, however, declined from day's high of Rs 289. 5.15 lakh shares changed hands on the counter.

State Bank of India scrip declined from its higher levels amid volatility on profit-taking, even after its Q3 results announced last week proved to be above market expectations. The market remained volatile last week due to hectic activity of institutional investors, US-Iraq war fears and announcement of a slew of corporate results for Q3.

On the day of the announcement of its results on 29 January 2003, SBI shed 2.3% to Rs 283.45. However, the scrip recovered from the day's low of Rs 278.15. In the next session on 30 January 2003, the scrip once again slipped to Rs 279.85 but it recovered to settle at Rs 282.25 on 31 January 2003. It gained further ground on Monday.

Market men said the major trigger for the stock remains the hike in limit for foreign institutional investors. Currently, there is a cap of 20% for FIIs in SBI. The GDR holding also comes under the overall ceiling of 20% for FIIs in the bank. At present, their limit stands exhausted as they hold a 19.63% stake in SBI (as per the shareholding pattern of the bank on 31 December 2002). The holding of FIIs includes the 7.88% holding of GDR holders in the bank.

SBI recorded a 28% growth in its Q3 net profit to Rs 787.05 crore (Rs 7.87 billion). The profit growth was above expectations of Rs 731.50 crore (Rs 7.31 billion) to Rs 782.50 crore (Rs 7.82 billion). Net revenues grew by 18% to Rs 3,756.93 crore (Rs 37.56 billion). That was in line with analysts expectations of Rs 3,660 crore (Rs 36.6 billion) to Rs 3,759.60 crore (Rs 37.59 billion).

For the nine months ended December 2002, net interest income recorded a 7% rise to Rs 7,210.20 crore (Rs 72.1 billion), mainly due to a hike in interest income by 4% to Rs 23,066.35 crore (Rs 230.66 billion). At net level, net profit stood at Rs 2367.45 crore (Rs 23.67 billion), up 30%.

The results were mainly driven by stable spreads, higher non-interest income and containing operating expenses. This has helped the bank to maintain its profitability trend, despite a fall in actual lending rates and pressure on interest margins in the banking industry. Effective management of non-performing assets, leading to improvement in net NPA ratio and improvement in capital adequacy ratio, are amongst other highlights of the nine-month performance of the bank. A recovery in credit off-take is key to SBI's performance and a major trigger for the stock. Credit to the commercial sector has shown signs of revival in recent weeks.

The bank's NPAs were contained during the nine months ended December 2002. The net NPA ratio has come down to 4.7% from 5.6% as on March 2002. Provision cover for NPA is over 60% as on December 2002. Under the recently enacted Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, notices have been issued in 112 cases involving Rs 1352.62 crore. The bank is expected to be among the biggest beneficiaries of the Act.

Effective from 1 February 2003, SBI, which is one of the leading players in the housing finance sector (two other leading players are HDFC and ICICI Bank), slashed the interest rate on housing loans by 0.75% across the board. While removing the slab of up to five years, SBI will now charge an interest of 9% and 9.25% on floating and fixed basis respectively for loans up to 10 years. For loans of tenure 10-20 years, the rate has been reduced to 9.5% on floating basis and 9.75% on fixed basis.

BSE Code: 500112