The over enthusiasm on the banking sector dissipated on Tuesday and leader State Bank of India was pinched by profit booking after solid gains ahead of the Union Budget.

The scrip of India's largest commercial bank edged lower by 1.1% to Rs 310 on BSE as a result. That was above the day's low of Rs 309, though. Around 207,000 State Bank of India shares were traded on BSE in about half-an-hour of trading. Dealers feel selling pressure is emerging on the counter.

The scrip has been rising strongly of late, touching a five-year closing high of Rs 313.90 on 24 February 2003. The passage of the Securitisation Bill in Parliament, the retail focus of the bank, the fall in cost of funds (cost of deposits), the fall in non-performing assets and the expectations that the 20% FII ceiling on the bank may be relaxed in the Union Budget have triggered the rally in the stock.

From Rs 233.80 on 14 November 2002, the scrip surged 34.2% in three months to the five-year closing high of Rs 313.90 on 24 February 2003.

Banking analysts say there's much to be positive about State Bank of India. Besides the above-mentioned developments, the credit offtake in the banking sector has started picking up. This is quite important for the largest commercial bank in the country, SBI.

On Friday last week, SBI cut home loan interest rates for old customers. They will now be charged 9% for 10-year loans and 9.5% for loans over 10 years. Till now, they were being charged a minimum 11.25%. The new rates will be introduced with effect from 1 April 2003. With this, SBI will take a hit of Rs 200 crore (Rs 2 billion) next fiscal. Banking analysts however say that this is not a significant revenue loss for a big bank like SBI.

The retail loan portfolio of SBI grew by Rs 992 crore (Rs 9.92 billion) in just one month, between December 2002 and January 2003. Of the Rs 5,459-crore (Rs 54.59 billion) retail growth in 10 months to January 2003, home loans constitute Rs 3,301 crore (Rs 33.01 billion). The bank's incremental credit stood at Rs 7,884 crore (Rs 78.84 billion) as on 31 January 2003.

For Q3 ended 31 December 2002, SBI recorded a 28% growth in net profit to Rs 787.05 crore (Rs 7.87 billion). Net revenues jumped by 18% to Rs 3,756.93 crore (Rs 37.56 billion). For the nine months ended 31 December 2002, net interest income recorded a 7% rise to Rs 7,210.20 crore (Rs 72.1 billion), mainly due to an increase in interest income by 4% to Rs 23,066.35 crore (Rs 230.66 billion). Net profit stood at Rs 2367.45 crore (Rs 23.67 billion), up 30%.

The bank is targeting a sharp reduction in its net NPA over the years to 2% by March 2005 from current 4.67%. The bank has approached consulting firms and specialists in its bid to recover sticky loans.

Banking analysts say the Securitisation Bill is a major development for the banking sector as the incremental NPAs will now be lower.

On the interest rate front, banking analysts say the trend towards reversing falling interest rates is already taking place. They, however, say that a major rise in interest rates is unlikely.

BSE code: 500112