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Credit Rating: -/BBB/-
State Bank of India
- Sector: Financial Services
- Sub Sector: Banks
- Country: India
- Bond: SBIIN 4.875 28
- Indicative Yield-to-Maturity (YTM): 5.23%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): -/BBB/-
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Fundamental View
AS OF 23 May 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-(sta)/BBB-(sta), the same as India’s sovereign ratings. Fitch revised its outlook to stable from negative while affirming its BBB- rating in June 2022. A sovereign downgrade to HY would be the greatest credit risk, but we assess that risk as low.
The bank’s capital buffers are relatively low, but we take comfort in the strong government support.
Business Description
AS OF 23 May 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, 13% SMEs and 10% to the agri segment.
- 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 23 May 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.
Asset quality is trending well but net slippages should normalize. Similar to the other PSBs, SBI has a large SME and mid-corporate book which could be impacted disproportionately by higher rates. However, SBI’s asset quality is better than the other PSBs and it is also better run due to the high caliber of its management team.
Deposit competition on the back of tight system liquidity has led to some 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 steady loan growth of 13-15% YoY in FY25 along with a stable NIM.
Key Metric
AS OF 23 May 2024| INR mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| NIM | 2.97% | 3.04% | 3.12% | 3.37% | 3.28% |
| ROAA | 0.38% | 0.48% | 0.67% | 0.96% | 1.04% |
| ROAE | 6.4% | 8.4% | 11.9% | 16.5% | 17.3% |
| Equity to Assets | 5.9% | 5.6% | 5.6% | 5.9% | 6.1% |
| CET1 Ratio | 10.1% | 10.3% | 10.3% | 10.6% | 10.6% |
| Gross NPA Ratio | 6.15% | 4.98% | 3.97% | 2.78% | 2.24% |
| Provisions/Loans | 1.83% | 1.77% | 0.91% | 0.54% | 0.14% |
| PPP ROA | 1.79% | 1.65% | 1.58% | 1.59% | 1.60% |
CreditSight View Comment
AS OF 10 May 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 good CASA ratio, a sufficient (though could be higher) CET1 ratio, good operating metrics and business plans, and the best management among the public sector banks. We like the SBI name for what it offers. Operating performance continued to perform well in FY24 on robust loan growth and benign asset quality. SBI’s less tight liquidity position than its private sector peers has allowed it to guide for steady loan growth of 13-15% YoY in FY25 along with a stable NIM despite deposit competition from tight system liquidity, while India’s continued macro resiliency support a low level of credit costs. We affirm our M/P recommendation.
Recommendation Reviewed: May 10, 2024
Recommendation Changed: December 07, 2020
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