State Bank of India figured among the biggest gainers in the Sensex on Tuesday as media reports suggested that the Centre was considering raising the FII ceiling for the bank.
The news had an obvious impact on the scrip of India's largest commercial bank, as it edged up 0.66% to Rs 274.80 at 10:10 IST. A total of 77,623 State Bank of India shares were exchanged on BSE by then.
Media reports suggest that the finance ministry is considering the proposal to hike the cap on foreign institutional investors' holding in SBI. Reports quoted minister of state for finance Anandrao Adsul as stating that the ministry is considering the proposal for increasing the FII cap in SBI and an announcement would be made in a couple of months. State Bank of India generally makes gains or losses on rumours related to the FII ceiling issue.
Over the nine sessions between 24 February and 8 March 2003, the scrip of SBI plunged 13.8% to Rs 316.65 from Rs 273 as the Union Budget gave no cue on the issue of FII ceiling in the bank. There was much disappointment for SBI from the Union Budget, in fact, as finance minister Jaswant Singh neither hiked (as expected) the FII cap for public sector banks from 20% to 49% nor excluded the Global Depository Receipts holding of 7.65% from the ceiling of 20% for FIIs (in SBI). Currently, the limit for FIIs in SBI stands exhausted as they hold a 19.63% stake (as per the shareholding pattern of the bank on 31 December 2002).
As per market talk, Kotak Securities was actively selling on the SBI counter. The brokerage had downgraded SBI on concerns about the company's future core earnings growth. The brokerage, expressing doubts about SBI's performance on its core earnings, said, despite reduction in deposit cost, spreads declined due to lower returns on resources deployed in the third quarter ended 31 December 2002. In contrast, net interest income and fee income of other PSU banks showed good growth.
Tough competition from private sector banks is believed to be putting pressure on SBI's spread. Despite the bank's focus on lower cost and retail thrust, analysts said the potential to improve spreads is limited as loans to deposit ratio could remain under pressure, retail exposure could be limited, investment in low-yielding assets could continue and deposit cost may not fall substantially. The fall was also attributed to the huge offloading of positions on the counter in the derivatives market. Players who had built positions ahead of the budget (on expectations of a hike in FII limits materialising), offloaded these after the budget, thus putting pressure on the cash market.
Prior to the Union Budget huge speculative buying had pushed up the SBI stock, as it surged 14.6% to Rs 313.90 on 24 February 2003 from Rs 273.90 on 31 January 2003. Institutions, too, were accumulating the stock. Prudential ICICI, Birla Sun Life, Reliance Mutual Fund and Templeton were believed to have bought the stock ahead of the budget announcement. The enactment of the Securitisation Act has also garnered interest in SBI. The bill allows lenders to attach assets of defaulting borrowers without having to go to court for the purpose. The bill paves the way for the setting up of asset reconstruction companies to recover non-performing assets.
SBI has already spruced up its act in respect of recovery of bad sloans and has moved to seize the assets of defaulting borrowers. Banking analysts from a domestic brokerage blamed the overall negative sentiment prevailing in the market as a result of geopolitical tensions for the fall in scrips in general. They are confident that the government will eventually increase the FII limit in SBI as the bank needs funds for expanding its business and the government is not in a position to infuse funds into the public sector bank.
For Q3 ended 31 December 2002, SBI recorded a 28% growth in net profit to Rs 787.05 crore (Rs 7.87 billion). Net revenues jumped by 18% to Rs 3,756.93 crore (Rs 37.56 billion).
BSE code: 500112
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