SBI had to contend with selling pressure in the market soon after it unveiled Q3 results that topped market expectations.

At the time of writing this piece, the scrip of the largest Indian commercial bank moved lower by over 3% to Rs 281.30 on BSE on Wednesday. The scrip hit a low of Rs 279.25 and it was sharply off the day's high of Rs 294.30. The scrip clocked high volumes of 1.71 million shares on BSE by mid-afternoon trades.

The stock moved in a band of Rs 280-300 in the run up to the results that were expected to be strong. SBI has been witnessing a sustained rise on the bourses over the last few months - from a low of Rs 229.75 on 31 October 2002. The scrip currently trades near a four-year high.

SBI's Q3 results have proved stronger than expectations. For Q3 ended 31 December 2002, SBI has posted a 28.2% growth in net profit to Rs 787.05 crore (Rs 7.87 billion) compared to Rs 613.89 crore (Rs 6.13 bilion) in the corresponding period last year. Net profit beat market expectations. A capitalmarket.com poll had forecast a Rs 19.20-27.50% growth in SBI's Q3 net profit at between Rs 731.50 crore (Rs 7.31 billion) to Rs 782.5 crore (Rs 7.82 billion).

SBI's total income has gone up 8.3% in Q3 to Rs 9,066.92 crore (Rs 90.66 billion). The top line growth is in line with market expectations. The poll had forecast a growth in the range of 7.6% to 12% in SBI's total income to between Rs 9,000 to Rs 9,381 crore (Rs 93.81 billion) for DQ 2002 as against Rs 8,366.50 crore (Rs 83.66 billion) in DQ 2001.

A recovery in credit offtake is seen as the key to SBI's performance and a major trigger for the stock of the largest commercial bank in the country. Credit to the commercial sector has shown signs of revival in recent weeks.

At present, FII holding in SBI has been exhausted as 19.63% stake is already held by them (as per the shareholding pattern of the bank on 31 December 2002). The FII holding includes the 7.88% holding of GDR holders in the bank. Repeated rumours surface from time to time that the government may consider excluding GDR holding from the overall FII limit of 20% in SBI. An eventual decision to that effect will prove very beneficial for the stock's fortunes.

Meanwhile, SBI has reduced interest rates on domestic term deposits of various maturities effective from 13 January 2003.

SBI is expected to be among the biggest beneficiaries from the passage of the Securitisation Bill. On 22 November 2002, the government cleared the Securitisation Bill that paves way for recovery of banks' sticky loans. Lenders can send notices to defaulters giving them a period of 60 days. If the borrowers fail to pay during this period, the Securitisation Bill allows them to take possession of defaulters' properties and also the personal properties of promoters/directors pledged with the bank. The bill is a significant legislative initiative to address the malaise of mounting NPAs.

Further, the bill paves way for setting up of asset reconstruction companies to recover NPAs. Importantly, the Securitisation Bill has created the right enviorment for the lending business say analysts.

BSE Code: 500112