Why is the SBI stock down 9 per cent this year?

Business

oi-Sunil

By Sunil Fernandes

Published: Wednesday, March 20, 2013, 11:24 [IST]

The State Bank of India (SBI) stock is down almost 9 per cent this year. From a closing of Rs 2426 on Jan 1, 2013, the stock has now reached a level of Rs 2197. Here are a few reasons for a drop in the stock price.

Q3 results disappoint

Analysts had largely expected a growth in net profits for Q3 2013. Net profit did rise to Rs 3396 crores for the bank for the quarter ended December 31, 2012, however, analysts had expected a net profit of around Rs 3700 crores.

High gross non performing assets

SBI's gross non performing assets before recoveries and write-offs, stood at 5.3 percent of assets for the quarter ending Dec 31, 2012, an increase of nearly one third over the corresponding period of the previous year. Worryingly high non performing assets is the single biggest reason for a drop in the share price of the bank.

Huge exposure to tricky borrowers

State Bank of India has exposure to some of the most beleaguered big borrowers from the private sector as well as electricity boards which are perpetually cash strapped. Suzlon Energy, Kingfisher Airlines and Air India are a few names, apart from the state electricity boards.

Economic slowdown

One of the biggest culprits for poor financial performance at SBI is the poor economic growth rates. In fact, growth rates in India have now plunged to a 10 year low, which is having a telling effect on SBI.

It's important to point out that the markets have also fallen a tad this year, so a drop in the SBI price has to be viewed in context with this fall. Investors in general are preferring private sector banking names because of their good asset quality.

However, private sector banking stocks have also dropped lately following allegations of money laundering by online webportal Cobrapost.

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