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Bond: SBIIN 4.875 28
State Bank of India
- Sector: Financial Services
- Sub Sector: Banks
- Country: India
- Bond: SBIIN 4.875 28
- Indicative Yield-to-Maturity (YTM): 5.23%
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Fundamental View
AS OF 18 Dec 2024State Bank of India (SBI) is the largest state-owned bank in India and is in some respects the country’s flagship bank. Given the bank’s ~57% government ownership and systemic importance, government support for SBI is very strong.
It is rated Baa3(sta)/BBB-(pos)/BBB-(sta), the same as India’s sovereign ratings. A sovereign downgrade to HY would be the greatest credit risk, but we assess that risk as low; S&P revised its outlook on India from stable to positive in May 2024.
The bank’s capital buffers are relatively low, but we take comfort in the strong government support.
Business Description
AS OF 18 Dec 2024- State Bank of India is the largest commercial bank in India. Its predecessor banks date back to the 19th century. In the early 20th century, they merged to form the Imperial Bank of India, which became the State Bank of India after India gained independence in 1947.
- The Government of India remains the largest shareholder with a 56.92% stake. Per the SBI Act, the government's shareholding cannot fall below 55%.
- SBI's merged with its 5 associate banks and Bharatiya Mahila Bank in 2018. The merger catapulted SBI into one of the world's 50 largest banks.
- The bank has 85% of its loans in the domestic market, and has steadily increased its international business too over the past few years with offices across all international business centres. The domestic book is split 42% retail, 35% corporates, ~14% SMEs and ~10% to the agri segment as of end-September 2024.
- It has diversified its operations with well regarded subsidiaries in the areas of fund management, credit cards, insurance, and capital markets.
Risk & Catalysts
AS OF 18 Dec 2024SBI does not have a strong buffer vs. the regulatory minimum of 8%, but its size, systemic importance and majority government shareholding confer particularly strong government support. But consequentially, any deterioration in the sovereign ratings will also affect the bank’s credit.
Increasing consolidation in the country’s financial space may narrow the gap between SBI’s market leading position vs its peers, particularly HDFC Bank.
Continued tight system liquidity has led to pressure on margins and loan growth of the Indian banks, but SBI’s less tight liquidity position than its private sector peers has allowed it to guide for robust loan growth of 14-16% YoY in FY25, above its deposit growth guidance of 10-11% YoY.
Asset quality is also trending well despite a stretched urban middle and lower-middle class consumer class, and slower than anticipated economic activity in India, as SBI’s personal unsecured loans book is ~95% to salaried employees of top tier corporates and the government. Net slippages however should still normalize this year.
Key Metric
AS OF 18 Dec 2024| INR mn | FY21 | FY22 | FY23 | FY24 | 1H25 |
|---|---|---|---|---|---|
| NIM | 3.04% | 3.12% | 3.37% | 3.28% | 3.18% |
| ROAA | 0.48% | 0.67% | 0.96% | 1.04% | 1.13% |
| ROAE | 8.4% | 11.9% | 16.5% | 17.3% | 17.8% |
| Equity to Assets | 5.6% | 5.6% | 5.9% | 6.1% | 6.6% |
| CET1 Ratio | 10.3% | 10.3% | 10.6% | 10.6% | 10.3% |
| Gross NPA Ratio | 4.98% | 3.97% | 2.78% | 2.24% | 2.13% |
| Provisions/Loans | 1.77% | 0.91% | 0.54% | 0.14% | 0.41% |
| PPP ROA | 1.65% | 1.58% | 1.59% | 1.60% | 1.78% |
CreditSight View Comment
AS OF 18 Nov 2024SBI is India’s largest bank and a well-run franchise. Government support underpins SBI’s relative positioning, while fundamentally, it has the lowest net NPA, a sufficient (though could be higher) CET1 ratio, good operating metrics and business plans, and the best management among the public sector banks. Deposit competition from tight system liquidity is putting pressure on interest margins, but SBI’s less tight liquidity position than its private sector peers has allowed it to guide for continued higher loan growth than deposit growth in in FY25. India’s continued macro resiliency and SBI’s lower risk personal unsecured loans clientele is supporting asset quality well, though gross slippages are higher than key private sector peers. We like the name and affirm our M/P recommendation.
Recommendation Reviewed: November 18, 2024
Recommendation Changed: December 07, 2020
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