Search the Internet          Tips  Sites: Finance, Investment

SBI up on separation scheme, result hopes

Shares of state-run State Bank of India, India's largest commercial bank, rose as much as 6.3 per cent on Tuesday as funds rotated holdings from software to 'old economy' sectors.

The shares rose Rs 13.8 to a high of Rs 234.00 before slipping back. By afternoon SBI was trading around Rs 229.30, up 4.1 per cent from Monday's close of Rs 220.20. The Sensex was up 0.88 per cent.

Analysts attributed the buying to hopes that 10 per cent of the bank's 233,000 workers will opt to take part in its early retirement scheme. The bank is offering employees between Rs 500,000 and Rs 600,000.

Media reports earlier this week said more than 22,000 bank employees had opted for voluntary retirement in the first week since the offer was made on January 15.

"But it is to be seen how hard this separation cost impacts the last quarter profit," said Imran Contractor, director of research at brokerage Milan Mahendra Securities.

Analysts expect the scheme to cost SBI around Rs 10 billion on a gross basis, with a post-tax impact of Rs 6.15 billion on net profit.

"The share is getting re-rated on account of the switch to defensive stocks," Contractor said and added he expects the bank to report strong third-quarter results, due out on January 30.

According to a Reuters poll, analyst forecast that SBI will post a 38.5 per cent rise in net profit to Rs 5.5 billion in the October-December period.

Earlier this month Credit Suisse First Boston (CSFB) said it expected a 5 percentage point fall in the bank's cost-to-income ratio, and a 3-4 percentage point increase in its return on equity, following the separation scheme.

CSFB set a one-year price target of Rs 252 for SBI.

Tell us what you think of this report