India’s largest lender, State Bank of India (SBI), expects to achieve an operating profit of Rs.70,000 crore for the fiscal year 2020. SBI Chairman, Rajnish Kumar, has urged his employees to work towards this target for the upcoming fiscal year. The bank has decided to focus on operating profit from core banking operations, which was slightly lower in the last two years.
SBI’s operating profit during the last two years witnessed a lot of volatility due to the contributions from one-off income. Various non-core operations like disinvestment of assets, initial public offer of SBI Life, etc., have contributed to the bank’s profitability in the last two years. Hence, the bank has decided to focus on the operating profit from its core banking operations.
During the first nine months of the current fiscal year (FY2019), the bank has reported an operating profit of Rs.38,503 crore. This is lower than its operating profit of Rs.43,628 crore for the same period a year ago.
SBI Chairman also mentioned that various exceptional items tend to distort the way in which profitability is compared over the years. He noted that the bank’s profitability must be a function of its core operating performance items and not just from exceptional items. The bank aims to achieve this target from the operations of all five of its business units.
One of the reasons for the higher operating profit target is to manage the provisioning done for unexpected exigencies. Moreover, a higher operating profit could also help the bank improve its net interest margin, return on equity, return on assets, cost-to-income ratio, etc.
For the fiscal year 2020, SBI looks forward to bringing down its cost-to-income ratio to 50% or less compared to 56.97% reported at the end of December 2018. The bank targets return on assets of 0.70% for the next fiscal year. The bank also aims to increase its net interest income in the future by increasing its interest rate and current account deposits.
Source: Hindu Business Line