India's Best Banks: Swinging Around

India is going through a remarkable transformation, enabled by progression in ease of doing business, mega tax reforms, financial inclusion as a policy thrust, universal health insurance, mass digitalisation, infrastructure development and the uptick in growth in the manufacturing and services industries. Simultaneously, the spurt in the GDP is being sustained by a stable inflation, increase in trade and steady employment creation. Not surprisingly, the spotlights are on India. This long journey of the Indian economy has had a partner in the sub-continent’s oldest commercial bank – the State Bank of India. The SBI, founded in 1806 as the Bank of Calcutta, is the country’s largest commercial bank in terms of assets, deposits, branches, number of customers and employees and enjoys the continuing faith of millions of customers across the social spectrum.

Today the SBI strengthens the nation’s trillion-dollar economy and caters for the aspirations of its vast population. With its huge customer base of 42.42 crore, the heavyweight occupies a space difficult to fill in the banking sector. Steered forth now by Chairman Rajnish Kumar, the SBI has taken several leaps forward. Kumar is a firm believer in the Indian economy. “Speeding up of the resolution process of distressed assets under the Insolvency and Bankruptcy Code (IBC) is likely to improve confidence in the economy,” he says, adding, “Increasing oil prices though remains a major risk to the country’s external balance.”

The challenges
A Motilal Oswal thematic research paper on SBI suggests that the bank’s exposure to the power sector remains a key concern. The SBI maintains a provision coverage ratio (PCR) of approximately 50 per cent on non-performing assets (NPAs) in the power sector. The SBI faces a major challenge from its exposure to the aviation sector and its sector exposure at tier-1 cities too. The SBI balance sheet is in a comfort zone because of its heavy exposure to public sector undertakings (PSUs) and top-notch corporates in the private sector (of which approximately 59 per cent are rated A- and above).

The Motilal Oswal report suggests that SBI was “looking to cap sector exposure at tier-1 levels”. It says the bank “does not have meaningful non-fund based exposure in the aviation sector” either. The report predicts that resolution of two power-sector accounts worth Rs 18 billion, expected by May- end, would spruce up the bank’s earnings. Three other SBI accounts in the power sector are expected to be resolved through one time settlement (OTS) schemes.  

The achievements 
At the SBI’s last annual general meeting, Rajnish Kumar said, “With a view to building and sustaining the momentum for Transforming India, SBI has created the largest number of touch points in terms of the number of branches and other modes, reaching out to the public at large. Today, we have 22,414 branches, 59,541 ATMs, CDMs, Recyclers, 6.10 lakh PoS machines and 58,274 Business Correspondent outlets.” The SBI aspires for a better asset quality trend in the years ahead and expects the recovery trajectory to remain strong. The Motilal Oswal report predicts that the SBI was poised for a recovery and an operating profit.