In the April-June quarter, India's largest bank State Bank of India was found to be the least efficient among other large banks in the Asia-Pacific, according to an analysis by S&P Global Market Intelligence. The cost-to-income ratio of SBI went up by 911 bps year-on-year to 71.06 per cent in the June quarter, due to losses on investments, according to the data compiled by Market Intelligence. The cost-to-income ratio measures profitability, which means higher ratio equals to higher costs and lower profitability.
Other Indian banks on the list, ICICI Bank and HDFC Bank, showed improvement in the ratios. The cost-to-income ratio of HDFC Bank Ltd. rose from 35.23 per cent to 40.78 per cent, while the cost-to-income ratio of the ICICI Bank went up to 60.01 per cent from 62.45 per cent. Most Indian banks are facing mark-to-market losses due to market weakness, according to the analysts.
On account of the mark-to-market impact on their investment book because of the firming of interest rates in the first quarter of 2023, the non-interest income of a number of banks, including SBI and HDFC Bank, has been affected, according to Krishnan Sitaraman, senior director and deputy chief ratings officer at CRISIL Ratings, a subsidiary of S&P Global.
In June, Indian banks, which are major buyers of government bonds, reported a surge in mark-to- market losses after the Reserve Bank of India raised its report rate, which pushed bond prices lower.
SBI reported a 6.7 per cent decline in standalone net profits in June quarter to 60.68 billion, mainly due to mark-to-market losses of Rs 65.49 billion on its investment book.
The report said that the pressure on bond prices is likely to continue as the Reserve Bank of India is expected to hike benchmark rates on September 30 in a bid to tame inflation. The banks' mark-to-market losses may be eased by subsequent rate hikes later this year.
The banks said in a press statement that they raised a coupon rate of 7.57 per cent annually for a tenure of 15 years with a call option after 10 years. This spreads 14 bps over a 10 year G-Sec.
SBI said the bonds attracted a large 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.