The largest public sector lender in the country, State Bank of India (SBI), is reworking its strategy for its global operations to improve effectiveness and increase its share in the bottom line. It aims to raise the share of global business in net profit to 20 per cent in 2014-15 from 17 per cent, now.
A senior SBI executive said while international offices worked with focus and constantly looked to conserve costs, there was always scope for improvement. At present, the share of the international banking group (IBG) in net profit is about 17 per cent.
SBI’s net profit nosedived 22.8 per cent at Rs 10,891 crore in 2013-14 from Rs 14,105 crore in 2012-13. Higher provisions for stressed assets (non-performing assets and standard restructured assets) have put pressure on profitability.
IBG, through its overseas branches and subsidiaries, provides a range of international banking services to Indian and foreign companies with operations inside and outside India. It also provides services to non-resident Indians (NRIs) in conducting business in foreign markets and local populations. By March-end 2013, the bank had 190 offices abroad.
“Though growth of our global business is closely linked to fortunes of the Indian economy, we have enough scope and expertise to tap opportunities in various regions of the world,” said another SBI executive working with IBG.
About 70 per cent of SBI’s business is India-related. If things do not work back home, the overseas book would also be affected, the executive said.
Most Indian banks, with overseas presence, predominantly cater to Indians abroad and Indian companies with international presence.
The bank will also explore new and secure lending options abroad. Its international book rose 6.8 per cent to Rs 2,14,302 crore at the end of March, 2014 from Rs 1,69,065 crore in the year-ago period.
While catering to retail, the focus will be limited to a few identified markets, especially of low-cost funds – current account and savings accounts. Back home, SBI enjoys cost advantage with high level of CASA. It was 44.43 per cent of total deposits at end of March 2014.
Going beyond the fund-based activity of global business, SBI will also push for improving fee-based earnings. The emphasis will be on syndication and bilateral deals to be engaged through correspondent banks.
According to another executive, the overseas business is equally divided in trade finance (funding of exports and imports) and terms loans to Indian companies.
With the international economy likely to recover soon, there is expectation of better trade (both merchandise and services) in 2014-15. The bank would target cross-border trade flows for financing, the executive said.
In April 2014, SBI mopped up $ 1.25 billion in overseas debt sale through a dual tranche bond programme. It raised $ 750 million in five-year money at US Treasury interest rate plus 205 basis points, while it priced the 10-year $ 500 million issue at 225 bps over the treasury.
It would use money to lend up to $ 500 million and repay securities, which are coming up for redemption and about $ 800 million for redeeming securities, which are maturing over the next few months.
BANK’S GLOBAL EXPANSION STRATEGY
- Aims to raise share in net profit to 20% from about 17%
- Build up steady local client portfolio
- Explore new and secured lending options
- More syndication and bilateral deals
- Target cross-border trade flows
- Centralise back-office activity to reduce costs