In its latest research report, Credit Lyonnais has said that the management of SBI had no clue of the deteriorating non-performing asset situation till December 1998. SBI officials admit to such a situation. "We came to know the actual quantum of NPAs only in the last quarter, so we had to make a higher provisioning," a top SBI official told The Financial Express.

The strongly worded report said that the bank's fourth-quarter operating profit dropped by 30 per cent and net profit by 112 per cent. "This staggering decline in the fourth-quarter 1999 profitability consequent to a sharp rise in operating expenses and huge provisioning for NPAs makes a mockery of the quarterly result reporting system as SBI's first nine months results (net profits were up 25 per cent) gave no indicationof the impending decline in the last quarter," the report said.

The provisionings for NPAs rose 24 per cent from Rs 1,150 crore last year to Rs 1,420 crore in FY 1999. "The fact that the management also really believed that the NPAs shall not rise is reflected in the actual provisioning of Rs 560 crore done in the first nine months. Thereafter the provisioning jumped to Rs 860 crore in the last quarter alone, taking the total for the year to Rs 1,420 crore. This reflects poorly on the management information system (MIS),'' said the report.

The report also points out that SBI's mutual fund subsidiary has made a loss of Rs 110 crore in one of its assured return schemes. "The management conceded that the loss of Rs 110 crore has been quantified, no provision was made in FY 1999 and will be made only in the current year."

CLSA added that though SBI is considered to be an "inefficiency to efficiency story", the bank's cost-to-income ratio has moved from 57.5 per cent in FY 1997 to 57.4 per cent in FY 1998and 63.1 per cent in FY 1999. "Even after excluding the one-time expense of Resurgent India Bonds, the cost-to-income ratio works out to be 59.7 per cent. Staff costs, which constitute over 70 per cent of the operating expenses, cannot be reduced and the management has conceded that this was not even being targeted. The other operational expenses which are being targeted will hardly reduce the cost-to-income ratio by just 2-3 per cent over the next few years," the report said.

The report concluded that SBI continues to have a large exposure to some vulnerable industries like 10.1 per cent to iron and steel, 14.2 per cent to engineering, 9.8 per cent to cotton textiles, 11.9 per cent to petroleum and 7.1 per cent to electricity generation industries.