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SBI found to be the least efficient bank in Asia-Pacific zone: S&P Global Market Intelligence report

SBI found to be the least efficient bank in Asia-Pacific zone: S&P Global Market Intelligence report

India's largest bank State Bank of India's cost-to-income ratio rose 911 bps year-on-year to 71.06 per cent in the June quarter, mostly due to losses on investments.

In comparison other Indian banks on the list, ICICI Bank and HDFC Bank, showed improvement in the ratios. In comparison other Indian banks on the list, ICICI Bank and HDFC Bank, showed improvement in the ratios.

India's largest bank State Bank of India has been found to be the least efficient among other large lenders in the Asia-Pacific in the April-June quarter, an analysis by S&P Global Market Intelligence stated. As per the data compiled by Market Intelligence, SBI's cost-to-income ratio rose 911 bps year-on-year to 71.06 per cent in the June quarter, mostly due to losses on investments. The cost-to-income ratio measures profitability, which means higher ratio equals to higher costs and lower profitability.

In comparison, other Indian banks on the list, ICICI Bank and HDFC Bank, showed improvement in the ratios. While HDFC Bank Ltd.'s cost-to-income ratio rose from 35.23 per cent to 40.78 per cent, ICICI Bank’s cost-to-income ratio rose up to 60.01 per cent from 62.45 per cent. As per the analysts, most Indian lenders are facing mark-to-market losses on their investments due to market weakness.

“My assessment is that on account of the mark-to-market impact on their investment book because of interest rates firming up in the first quarter of fiscal 2023, the non-interest income of a number of banks, including SBI and HDFC Bank, has been affected,” said Krishnan Sitaraman, senior director and deputy chief ratings officer at CRISIL Ratings, a subsidiary of S&P Global.

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As per analysts, mark-to-market losses, or unrealised losses on investments, happen when the value of financial assets held by companies fall. Indian banks, which are major buyers of government bonds, reported a surge in mark-to-market losses in the June quarter after the Reserve Bank of India raised its report rate, which pushed bond prices lower.

SBI reported a 6.7 per cent year-over-year decline in standalone net profits in the June quarter to Rs 60.68 billion, primarily due to mark-to-market losses of Rs 65.49 billion on its investment book.

The report added that the pressure on bond prices is likely to continue as the Reserve Bank of India is expected to hike benchmark rates again on September 30 in a bid to tame inflation. However, subsequent rate hikes later this year may ease the pressure on banks' mark-to-market losses.

Also read: HDFC Bank vs ICICI Bank: Which stock do analysts recommend?

On Wednesday, the public lender raised Rs 4,000 crore through Basel-III compliant Tier 2 bonds. In a press statement, the banks said that funds were raised at a coupon rate of 7.57 per cent payable annually for a tenure of 15 years with a call option after 10 years. This represents a spread of 14 bps over a 10-year G-Sec. 
SBI said the bonds attracted an overwhelming response from investors with bids of Rs 9,647 crore, and were oversubscribed by about 5 times against the base issue size of Rs 2,000 crore.