Current Account Surplus worth $19.8 billion recorded by India. And, all about it in detail.
Suppose your bank account was always on minimum balance or less. One day suddenly you get to know that you have won one lakh rupees in a lottery and the winning amount (after tax deduction) has already been deposited in your bank account. How would you feel? Of course, you will be happy and excited because this pandemic has been financially stressful for almost all of us. No matter to which sector you belong, be it a businessman or employee, we all got affected by this Covid-19 pandemic. But there can be deductions from your account because you have failed to maintain a minimum balance most of the time. Also, it would be hard for you to maintain this balance throughout the year.
You might be thinking that what are we talking about? So we have good news that the Indian government has reported a current account surplus of $19.8 billion in the April-June quarter. But it would be a challenge to maintain this throughout this year. Why? So let’s discuss this in detail.
What Does a Government Current Account Mean?
The government’s current account comes under the balance of payments of the country. This means that it is the difference between exports and imports. So, the existing government account is simply a current account that shows the flow of goods, services and income between residents and non-residents of a country.
It records exports and imports in goods, trade in services and transfer payments. So, this could be understood with a simple example, suppose Infoysis sold software to a company in America so that this transaction will be recorded in the current account.
The Indian residents who are working abroad and sending money to India are also recorded in the current account.
REVIEW
India has reported a Current Account surplus of $19.8 billion.
What are the different aspects of this?
Read all about it in this newsletter.
What Does Current Account Surplus Mean?
A current account surplus means that our nation has a positive balance in the current account. This is also known as a favourable current account. This indicates that India can now be the lender for the rest of the world.
This is because the lockdown that was imposed around the country due to the global Covid-19 pandemic has shrunk the imports of the country. In the same period last year, India reported a deficit of $15 billion. Also, there is a negative correlation between the current account deficit and the level of economic activities, which means that if the economic activities go down the current account deficit will go up. So clearly, the negative correlation has played out its role.
Is a Current Account Surplus Good or Bad
- A current account surplus has a positive effect on the Indian currency. This is because our nation has a limited amount of foreign reserves, and trade surplus means that the country is receiving payment from other countries. This means other countries are likely to buy rupee and sell foreign currencies. This means the rupee could appreciate shortly.
- It is essential to understand how this surplus has been achieved, a current account surplus partially occurs as a result of an increase in exports, but this may also be due to weak domestic demand which may be a result of low purchasing power in the country.
- The surplus helps RBI to increase its stockpile in forex reserves.
The Current Scenario
For several years our country has had a Current Account deficit. After 2006-07, India has for the first time reported a surplus in the Q1FY21, which is US$ 19.8 billion, that is 3.9% of our GDP. There could be many reasons for this, but the primary reason is that due to this pandemic our country has not been able to import goods from other countries and also the falling crude oil prices. Also, the government has received a considerable dividend from RBI, which is around ₹57,128 crore as surplus to the government for the fiscal year 2020.
The Bigger picture:
Though the government has reported a favourable current account balance still the growth of many sectors of the economy is shrinking, for example, the contraction of the cement industry which -14.5% for August, similarly in steel it is -6.3%, electricity -2.7% and so on. So still we aren’t back to normalcy. This might lead us to a double-digit contraction in GDP.
Conclusion
As discussed in the beginning, you won a lottery, and the money was deposited in your account, and you thought you had enough. But it would be challenging for you to maintain this because your record was not that favourable. Suppose we look at the whole scenario and relate it with the above example. In that case, the surplus trend of the current account may not survive for a long time. This is because the prices of crude oil will gradually rise with the recovery in domestic demand, and a modest recovery in imports will reverse the trend. Because once we will be able to import the demands will gradually increase.
But, to maintain this surplus, our government is taking several initiatives like the Atma Nirbhar Bharat moment to promote startups in India and Vocal for local movement to encourage local sellers. The government is also inviting FDI’s to come and invest in India. But on the other hand, as discussed above, this may be due to a decrease in the purchasing power of the citizens of India. So it’s essential to find out the reason behind this surplus and work on it accordingly.
Today's Stock Brief - SBIN
The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in 1806 in Calcutta. Three years later the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result of the compulsions of imperial finance or by the felt needs of local European commerce and were not imposed from outside in an arbitrary manner to modernise India''s economy. Their evolution was, however, shaped by ideas culled from similar developments in Europe and England, and was influenced by changes occurring in the structure of both the local trading environment and those in the relations of the Indian economy to the economy of Europe and the global economic framework.
The State Bank of India, the country’s oldest bank and a premier in terms of balance sheet size, number of branches, market capitalization and profits is today going through a momentous phase of change and transformation – the 200 Yrs old public sector behemoth is today stirring out of its public sector legacy and moving with an agility to give the private and foreign banks a run for their money.
The bank is entering into many new businesses with strategic tie-ups – Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, structured products etc – each one of these initiatives having a huge potential for growth.
The bank is forging ahead with cutting edge technology and innovative new banking models, to expand its rural banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100, 000 villages in the next two years. At the end of March 2011, the total number of branches was 13, 542 while the number of ATMs stood at 20, 084 across the country.
It is also focusing at the top end of the market, on wholesale banking capabilities to provide India’s growing mid/large corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into structured products and derivative instruments. Today, the bank is the largest provider of infrastructure debt and the largest arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.
The bank is actively involved since 1973 in non-profit activity called Community Services Banking. All branches and administrative offices throughout the country sponsor and participate in large number of welfare activities and social causes. Their business is more than banking because they touch the lives of people anywhere in many ways.State Bank of India (SBI) has received an approval from the Government of India (GOI) for acquisition of SBI Commercial and International Bank (SBICI Bank). The government had issued the ''Acquisition of SBICI Bank Order 2011'' vide order dated July 29, 2011.
SBI entered the UK''s home loan market, the bank started with mortgages for landlords, best known as buy-to-let mortgages, with amounts ranging from £50, 000 to £1.5 million, and loan to value of ratios of up to 60 per cent.
In April 2014 State Bank of India launched three digital banking facilities for the convenience of SBI customers. Two at the customer’s doorstep using TAB banking - one for customers opening Savings Bank accounts and another for Housing Loan applicants. The third is e-KYC (Know Your Customer).
In Feb 2017, the Union cabinet approved the proposed merger of State Bank of India (SBI) and five subsidiaries-a combination that will create the first Indian lender to rank among the world’s top 50. State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT) to merge with the country’s largest bank. According to a plan approved by the board of SBI in August 2016, investors in SBBJ holding 10 shares will get 28 shares of SBI. Investors in SBM and SBT holding 10 shares will get 22 SBI shares each. The other two associate banks are not listed.
Services offered by the company:
- NRI Services
- Personal Banking
- International Banking
- Agriculture / Rural
- Corporate Banking
- SME
- Government Business
- Domestic Treasury
Foreign Subsidiaries
- SBI International (Mauritius) Ltd.
- State Bank of India (California)
- State Bank of India (Canada)
- INMB Bank Ltd, Lagos
- BANK SBI Indonesia (SBII)
Non-banking Subsidiaries
- SBI Capital Markets Ltd
- SBI Funds Management Pvt Ltd
- SBI Factors & Commercial Services Pvt Ltd
- SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)
- SBI DFHI Ltd
- SBI General Insurance Company Limited
Joint Ventures
- SBI Life Insurance Company Ltd (SBI LIFE)
- SBI General Insurance Company Limited
SBI Stock Price Analysis and Quick Research Report. Is SBI an attractive stock to invest in?
The Indian Banking sector is rising rapidly due to infrastructure spending, favourable government policy, rising disposable income and increasing consumerism and easier access to credit.
The banking industry is in boom with growing demand across India. But is it the right time to invest in banking stocks is the question to be asked? We can look into more details and dig a little deeper into the analysis of the stock.
Let’s look at how SBI is performing and if it is the right time to buy the stock of SBI with detailed analysis.
For Banking companies, The primary source of Income is interest earned on various loans given to individuals and corporates. SBI has earned Rs 2,57,323.5922 Cr. revenue in the latest financial year. It has posted decent revenue growth of 13.60 % in last 3 Years.
In terms of advances, the bank reported 6.38 % YOY, rise. If you see 3 years advance growth, it stands at 13.96 %.
Currently, the company has a CASA ratio of 44.23 %. Its overall cost of liability stands at 4.48 %. Also, the total deposits from these accounts stood at Rs 32,41,620.7343 Cr.
The Bank has a Poor ROA track record. The ROA of SBI is at 0.38 %.
The Lender is inefficiently managing its overall asset portfolio. The Gross NPA and Net NPA stood at 6.15 % and 2.23 % respectively as on the latest financial year.
One other important measure of banks’ financial health is provisioning coverage ratio. The YoY change in provision and contingencies is negative at -18.44 % which means it has decreased from the previous year.
Non-Interest income or other incomes are very important for banks as it gives a regular source of income for the bank with no additional risk. Other income of SBI decreased and is currently at Rs 452.21 Cr.
The company has a Good Capital Adequacy Ratio of 13.06.
The best metric which provides insights about the bank’s valuation is the P/B ratio. Currently, SBI is trading at a P/B of 0.82. The historical average PB was 1.20.
Strengths
Looks like the company does not have any notable strengths.
Limitations
The bank has a very low ROA track record. Average ROA of 3 years is 0.06%
Company has a low ROE of 1.29% over the last 3 years.
The Bank has a high NPA; Average NPA of the last 3 years stands at 3.66%.
High Cost to income ratio of 52.46%.
(source: TICKER FINOLOGY)
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