SBI used to add two components -interest debited and realised and claims by Deposit Insurance and Credit Guarantee Corporation (DIGC) on loan accountsto its gross NPAs and provisions but from the year 2006-07 (as per audit), the gross non-performing assets have to be shown after netting out these items. During FY07, these items amounted to Rs 739 crore. Adjusting for these, gross banks NPAs actually increased by 3.5% year-on-year to Rs 10, 380 crore. However the actual rise in fresh NPAs is 15%, but the net increase in NPAs after factoring in recoveries and write-offs is less than 4% which is much lower than expected as NPAs are expected to rise for the sector.
Merrill Lynch is factoring in a net 40% increase building in higher accretion and lower recovery rates. Also fee growth remains somewhat a challenge for the SBI, said the report.
While reported fees grew by 20% year-on- year, it is partly due to re-classification of certain items that are now taken as part of other income. Adjusting for these, fee revenue growth is lower at less than 10% year-on-year.
Fee revenues could, however, provide the positive surprise in the coming years as SBI now has almost 90% of its business, from the 4,800 branches, on the integrated technology platform. This should enable SBI to effectively leverage its 100 million customer base. Further, the bank is also planning new initiatives such as private equity, general insurance, merchant acquisition and payment systems.
While it may take a few years for the benefits to be visible, its experience in credit cards and more recently life insurance is encouraging, said the report. It has finally begun leveraging its wide distribution network and size to gain meaningful market share in both these segments.
The fee income is expected to grow by 15% for FY08 which could further accelerate in FY09 and beyond, said the report.