State Bank of India surged for the third day running on Tuesday and rumours about a possible hike in the bank's FII ceiling seem to have cropped up afresh.

As a result, the scrip of the largest commercial bank in the country emerged higher by 2.4% to Rs 297.50 on BSE in a little over two hours of trading.

The scrip hit a high of Rs 298.40 earlier. A total of 949,000 State Bank of India shares were traded on BSE thus far. The scrip has gained 6.3% to its current level from Rs 279.85 on 30 January 2003.

Dealers say rumous of a relaxation of FII ceiling in the stock have cropped up anew. A relaxation in FII ceiling is seen as a major trigger for the stock. Currently, there is a cap of 20% for FIIs in SBI. The GDR holding also comes under the overall ceiling of 20% for FIIs in the bank. At present, their limit stands exhausted as they hold a 19.63% stake in SBI (as per the shareholding pattern of the bank on 31 December 2002). The holding of FIIs includes the 7.88% holding of GDR holders in the bank.

On and off, in fact, rumours that the 20% FII ceiling in SBI will be relaxed crop up in the market. This is expected to be done by the removal of GDR holding from the overall FII ceiling.

But dealers say vested interests may have spread these rumours to push up the stock.

For Q3 ended 31 December 2002, SBI recorded a 28% growth in net profit to Rs 787.05 crore (Rs 7.87 billion). The profit growth was above expectations of Rs 731.50 crore (Rs 7.31 billion) to Rs 782.50 crore (Rs 7.82 billion). Net revenues grew by 18% to Rs 3,756.93 crore (Rs 37.56 billion). That was in line with analysts' expectations of Rs 3,660 crore (Rs 36.6 billion) to Rs 3,759.60 crore (Rs 37.59 billion).

For the nine months ended 31 December 2002, net interest income recorded a 7% rise to Rs 7,210.20 crore (Rs 72.2 billion), mainly due to a hike 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 results were mainly driven by stable spreads, higher non-interest income and containing operating expenses. This has helped the bank to maintain its profitability trend, despite a fall in actual lending rates and pressure on interest margins in the banking industry.

Effective management of non-performing assets, leading to improvement in net NPA ratio and improvement in capital adequacy ratio, are amongst other highlights of the nine-month performance of the bank. A recovery in credit off-take is key to SBI's performance and a major trigger for the stock. Credit to the commercial sector has shown signs of revival in recent weeks.

The bank's NPAs were contained during the nine months ended 31 December 2002. The net NPA ratio has come down to 4.7% from 5.6% as on 31 March 2002. Provision cover for NPA is over 60% as on 31 December 2002. Under the recently enacted Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, notices have been issued in 112 cases involving Rs 1352.62 crore. The bank is expected to be among the biggest beneficiaries of the Act.

Effective from 1 February 2003, SBI, which is one of the leading players in the housing finance sector (two other leading players are HDFC and ICICI Bank), slashed the interest rate on housing loans by 0.75% across the board. While removing the slab of up to five years, SBI will now charge an interest of 9% and 9.25% on floating and fixed basis respectively for loans up to 10 years. For loans of tenure of 10-20 years, the rate has been reduced to 9.5% on a floating basis and 9.75% on a fixed basis.

BSE Code: 500112