[sbinews] SBI enters credit derivatives mart (Business Standard)

  • From: "Rajendra S. Pai" <rs.pai@xxxxxxxxx>
  • To: <sbinews@xxxxxxxxxxxxx>
  • Date: Tue, 26 Oct 2004 09:25:35 +0530

SBI enters credit derivatives mart
(Business Standard)
Anindita Dey / Mumbai October 26, 2004

The State Bank of India (SBI) has taken a plunge into the credit derivatives
market to cope with the risk arising from its growing loan portfolio.

The public sector major has recorded a growth of almost Rs 36,000 crore or
25 per cent in its loan portfolio on a year-on-year basis till September
2004. This was against last year's industry average of 23 per cent.

Credit derivative is an instrument which helps to hedge the risk emerging
from the loan portfolio on the asset side. Credit risk arises when the
counter-party fails to pay back the principal or interest payments liable to
a bank or any party from which it has taken the loan.

Under this instrument, a bank could enter into an agreement with another one
or other party to swap the credit risk in exchange for a premium.

In absolute terms, SBI's loan assets stood at Rs 1,71,000 crore at the end
of September 2004 as against Rs 1,35,000 crore in the corresponding period
of the previous year, an official said. Bank officials said the bank's
participation in credit derivatives is still very small.

In the total credit growth of the bank, more than 40 per cent has been
contributed by retail assets. There might be a need for liquidating the
excess investments maintained under the statutory liquidity requirements
going by the spurt in the credit growth.

Moreover, officials added that the deposits growth, though has been healthy,
is yet to match the pace of the credit growth.

Deposits for the bank grew by around Rs 25,000 crore to around Rs 32,000
crore this year from Rs 2,93,000 crore last September. Market sources said
the boards of various public sector banks have instructed their respective
treasury departments to slash the investments in government securities and
make available funds for credit deployment. Year-on-year in September, the
banking sector, as per the weekly statistical supplement released by the
Reserve Bank of India, has registered a growth of 23.9 per cent in bank
credit at Rs 1,79,321 crore as against Rs 76,652 crore last year.

Out of the total growth in bank credit, non-food credit accounted for Rs
1,78,585 crore. On the contrary, investments have gone down by 11 per cent
to Rs 68,955 crore as against an investment of Rs 1,28,395 crore last year.

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