The corresponding impact of this income diversification will be felt on the bank's NPA management. For SBI, during 1998-99 strong emphasis was made on management of NPAs. Even then, net NPAs went up from 6.07 per cent to 7.18 per cent. Now the bank has decided to achieve a target of 5 per cent net NPAs by March 2000. This obviously calls for a major effort towards recoveries. But reducing net NPAs depends on setting aside substantial amounts as provisions for bad debts. That will become increasingly difficult with the pressure on margins. It is reduction in the level of gross NPAs which is the touchstone of NPA management.

Another way to reduce NPAs is to step up recoveries. To the latter end, the bank should attempt talking to its customers and offering to negotiate whereever possible. This is especially true given the time consuming and ineffective legal process in the country. Some beginnings have been made towards this end where specialised recovery centres have been set up at the bank's main urban centers. If the bank can have specialised branches such as those catering to personal finance needs, it can also have specialised branches looking after its recoveries.

Besides diversification of sources of fund-based income, the proportion of non-fund based income to total income should be increased, with an eye out to reduce risk. The expected growth in the current year in fee-based income is 30 per cent, which will just about ensure that the latest ratio is maintained, a very big ask given the banks recent track record. In fact during the first quarter, fee-based income could be increased only by 5.6 per cent. Other targeted parameters include a return on assets of 1 per cent, against which the figure was below 1 per cent during the first quarter. During the first quarter, the expenses ratio was 60.5 per cent, up from last year's 58 per cent. The bank has a long haul ahead of it if it is to reach the target of 55 per cent by March 2000.

The bank continues to lose market share. The first quarter deposit growth was 14 per cent, compared to the all-bank figure of around 20 per cent. It was also considerably less that the bank's 1999-2000 target of 20 per cent growth. The credit growth of 14.6 per cent was around the average, but less than the bank's taregt of 16 per cent for the year.

The bank's plan to establish 100 specialised personal segment branches catering to high net worth individuals, and competing with foreign and private banks, also is proceeding very slowly. The bank's problem is that it is unable to release the locked up talent in itself to maximise productivity. The best way to unlock this latent value is through privatisation.

Finolex Cables

Buoyed by DoT orders, Finolex Cables (FCL) has shown a 73 per cent topline growth in the first quarter. This is far higher than the 45 per cent growth registered by the industry leader -- Sterlite Industries (SIL). FCL's market share in jelly filled telephone cables (JFTC) is just about half that of SIL.

A look at operating margins would show that the efforts of cost saving done in the last two years have yielded the desired results. Operating margins have increasesd to 16 per cent in the first quarter of the current year, compared to 9 per cent in the corresponding period in 1998-99. Cash payments from DoT orders have reduced the interest payments. Accordingly, perhaps for the first time, the bottomline showed a growth rate of over 246 per cent.

But stock markets have not really been enthused. In May 1999, stock prices of both SIL and FCL were ruling at similar levels at Rs 180. While the stock price of SIL has more than doubled to close at Rs 393, FCL shares have only appreciated by 50 per cent to Rs 250. The reasons are, however, not difficult to gauge. Technically, the first quarter results of FCL cannot be compared to that of last year. DoT orders were released in the second quarter resulting in sudden one off jump shown in the income statement of the first quarter 1999.

While the tax shelter for FCL has been totally exhausted, SIL has a depreciation benefit from the commissioning of its one lakh tonne smelter. Consequently, the tax rate for FCL is at 30 per cent plus. Further, one must realise that the rise in DoT orders is not the only reason for the rise in SIL's stock price. The other businesses of SIL are in equally good shape. The TC/RC margins for SIL in copper refining process are rising due to the continuous rise in copper price.

In comparsion, the other business segments of FCL are unlikely to show higher revenues for the company in the coming fiscal. FCL's other businesses include light duty cables, power cables, communication cables and other speciality cables. These business are dependent on the electrical sector. The importance of these business segments is that it diversifies the revenue base from other sectors, resulting in more uniform earnings levels. But at the time of upsurge in economy, such business segments are the last to show higher growth rates. Unfortunately, the problems of overcapacity and stagnant demand continues to affect the players in these sectors. Till buoyancy in these sectors also comes up, FCL would continue to get lower discounting compared to its peers in the sectors.

Aviation

``The airlines propose and the civil aviation ministry disposes.'' This in one-line sums up the mess that is our civial aviation sector. The most recent example of which is the decision by the Civil Aviation Ministry to freeze all technical evaluations on the commercial bids received by Indian Airlines (IA) and Air-India (A-I). Both the airlines had recently completed called commercial bids for replacement of their ageing aircraft fleets and A-I had, in fact, gone to the extent of shortlisting six aircraft for replacement.

The blame this time has been levelled squarely on the upcoming general elections. Sighting the model code of conduct announced by the Election Commission, the ministry has decided to put on hold any policy decisions and new initiatives till a new government is formed.

Readers might remember that it has been this continuous dilly-dallying in seeking a remedy for the ills that plague these airlines, which may have already forced them to a point of no return. Additionally, given the precarious financials of both the carriers, it has long been propported by all and sundry that swift action is the need of the hour. Take the case of fresh aircraft acquisitions for both A-I and IA , which has now been delayed for over two and a half years. In fact, according to some published data released by the US Bureau of Labour and Statistics, A-I alone could well have lost around Rs 350 crore due to the delay in the acquisition and induction of new aircraft due to a 5 per cent per annum escalation in costs.

With contributions from Aaron Chaze, Manish Saxena & Percy Dubash