Friday, August 25, 2006

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SBI rejoices as Cabinet clears follow-on offer
State Bank of India jumped 3.7%, to Rs 906.90 after the Union Cabinet allowed it to raise fresh capital by issuing equity and preference shares.As many as 4.7 lakh shares changed hands in the counter on BSE.State Bank of India made a strong rebound from the lower level as bond prices started recovering from multi-year lows, raising hopes that domestic rates may not rise in the short term. Improved Q1 June 2006 results aided a rebound in the stock. From a low of Rs 689.50 on 19 July, it surged to Rs 887.10 on 16 August, before cooling off a bit to a low of Rs 862.60 on 23 August. It rose 1.3%, to Rs 874.10 on 24 August.

At the current market price of Rs 906.90, the stock trades at 14.9 times its Q1 June 2006 standalone annualized EPS of Rs 60.7 and 12.4 times Q1 June 2006 consolidated annualized EPS of Rs 73.

The Union Cabinet on Thursday sanctioned a follow-on public issue by State Bank of India, by approving the SBI (Amendment) Bill. The bill proposes to lower the floor for RBI’s holding in SBI to 51%. RBI, currently, holds 59.73% in India's largest commercial lender. The lowering of the floor for RBI's stake will create sufficient space for bank to hit the capital market with the follow-on offering.

The SBI (Amendment) Bill also proposes to allow SBI to raise Rs 5,000 crore of capital through an issue of preference shares. This will help the bank meet capital adequacy needs for growth, and also be prepared for implementing the reviewed capital adequacy norms which are referred to as Basel II. The implementation of Basel II norms is estimated to reduce the capital adequacy of banks by about 2 percentage points.

Recently, SBI had obtained board permission for raising Rs 5,000 crore through either hybrid instruments or subordinated debt. SBI has already raised Rs 2,300 crore in June this year.

The banking sector has continuously raised lending rates over the past few months to protect their margins, when the cost of funds has been rising in a rising rates environment. SBI’s asset liability committee had recommended a 0.25% increase in PLR on 1 August. The rate hike came into effect from 2 August. After the hike was announced, the finance ministry directed public sector banks to obtain approval of their boards for increasing lending rates.

Earlier, public sector banks had raised their prime lending rates (PLRs) by 50 basis points on 1 May, even though the RBI had left its key rates untouched in the April policy, after hiking them by 25 basis points in January.The banking sector has been showing credit growth of over 31%, dominated mainly by non-food credit.

UTI Bank hardens on raising FII ceiling
UTI Bank jumped nearly 4%, to Rs 341.95 after RBI raised FII ceilng in the scrip to 49% of its equity capital.As many as 60,016 shares changed hands in the counter on BSE.As on 30 June 2006, total FII-holding in UTI Bank was 41.70%. This includes GDR holding of 5.19%. The hike in FII-holding provides scope for further increase in foreign investment in bank.

UTI Bank has surged over the past few months. Strong Q1 June 2006 results aided the rally. From a low of Rs 252.90 on 19 July, it advanced to Rs 329 by 24 August 2006.

At the current price of Rs 341.95, the stock trades at 19.88 times its Q1 June 2006 annualized EPS of Rs 17.2, and 3.5 times its end-June 2006 adjusted book-value of Rs 95.

The scrip has been a favourite of investors due to consistent earnings growth and because of its ability to protect margins in a challenging environment and sustain growth. UTI Bank has reported a consistent growth of over 25 % in its earnings per share (EPS) over the past several quarters. The June 2006 quarter was no exception, the bank clocking a 30% growth in its EPS. Driven by a robust growth in retail loans, UTI Bank's advances grew 65% in the quarter. The bank's increasing thrust on high-yielding retail loans has helped it improve the net interest margins (NIMs).

The bank's increasing thrust on the retail segment and a stronger focus on non-fund based banking are likely to ensure healthy growth over the next few quarters, analysts reckon.

Early this month, UTI Bank forayed into credit cards segment to further boost its fee-based income. UTI Bank, along with MasterCard, launched an international debit card for small and medium enterprises and self-employed professionals.

UTI Bank has a network of 369 branches, 95 extension counters and 1,987 ATMs across the country.

UTI Bank early this month raised capital abroad through a debt offering, the first one to take advantage of recent norms unveiled by the India's banking regulator. The bank raised $150 million in the form of upper tier bonds. UTI Bank's issue was priced at 170 basis points(bps) above the six-month Libor, which took the fixed coupon rate to 7.25%. UTI Bank plans to utilise the money raised abroad to fund its overseas operations.UTI Bank has maintained low NPAs for a long period of time.

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