Bank suffered similar profit shocks in the quarter after Janki Ballabh & OP Bhatt took over as chiefs !
After delivering shocking results for the quarter to March 2011, the State Bank of India Chairman Pratip Chaudhuri told the media on Tuesday that this was a quarter that the bank would like to forget. That is a sentiment which some of those who have headed India’s largest bank would have surely shared and for good reasons. Janki Ballabh, who succeeded GG Vaidya in November 2000 as the bank’s chairman, saw the net profit decline 45% in the very next quarter after taking over, only to show vastly improved set of numbers in the subsequent quarter. Om Prakash Bhatt, who steered SBI for five years until March this year, also followed the same script. The first quarter after he took charge as chairman in 2006, was marked by a 35% drop in profits, only to see a reversal of trend in the quarter that followed with a 45% growth in the bottom line. The perceived attempt in some of these cases, which also involve other state-run banks, is to boost the performance of the CEO of the bank shortly after taking over. For analysts who got the latest quarter results wrong, the numbers may have come as a big shock, but inside SBI, there were many who were anticipating this. But not the magnitude of the cleaning-up exercise. Mr Chaudhuri, who succeeded Mr Bhatt last month, sought to play it down saying it was just a coincidence that too many things such as provisions for bad loans, wage revisions and higher taxes were clubbed in a single quarter. “For the nine months,the bank has shown a 13% growth in earnings and in Q4 it has shown a 99% decline. What has happened in the fourth quarter to justify this performance? The only thing that is different and that is visible is the new chairman,” said Hemindra Hazari, head of equity research at Nirmal Bang Institutional Equities. Fingers are now being pointed at OP Bhatt for what some insiders in the bank say was an overtly aggressive drive to boost market share at the cost of the quality of assets.SBI did succeed on this front by taking on aggressive private banks, especially on home loans, even if it meant walking the thin line on regulations. Even when RBI sounded a warning to SBI to withdraw its teaser loans, Mr Bhatt did not relent, arguing that such loans benefited customers and could not be compared to the subprime loans in the US. Mr Chaudhuri’s predecessor could not be reached for comments despite several attempts. The face-off between the regulator and an unrelenting Bhatt led to RBI dropping by a notch the bank’s top rating which it assigns. This was done as the central bank said that the lender had not set aside enough funds against bad loans. By now going the full hog in provisioning or setting aside more funds for bad loans, SBI may gain a respite on the ratings front from RBI. “This is a lesson to those banks who want to be aggressive in garnering market share, or overall visibility, because in their drive to achieve this, margins had to take a hit and bad debt provisioning deferred to show higher profit,” says Mr Hazari of Nirmal Bang Institutional Equities. In an earlier interview to ET, when asked whether the drive to gain market share could be at the cost of asset quality, Mr Bhatt had this to say: “Whenever a financial institution grows fast, the rate of NPA also grows. It is co-related. But even then, whenever a financial institution, in India and abroad, grows fast, it is a natural corollary that NPAs will also grow fast. Add to that the crisis to the economy. But with all that, our growth (in NPAs) was not the highest. There are banks whose NPA growth was more than ours compared to our asset growth.”
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