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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 08 Jun 2023- State 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 close government links 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 08 Jun 2023- 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 56.9% 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.
- 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 08 Jun 2023- SBI 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.
- The NIM should remain stable in the coming quarters as the bank has room to raise its MCLR and excess statutory liquidity ratio (SLR) reserves to unwind to fund loan growth, which is targeted at 12-14% in FY24.
- Asset quality is trending well, but net slippages should normalize in FY24. 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.
Key Metrics
AS OF 08 Jun 2023| INR mn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Interest Margin | 2.78% | 2.97% | 3.04% | 3.12% | 3.37% |
| ROA | 0.02% | 0.38% | 0.48% | 0.67% | 0.96% |
| ROE | 0.4% | 6.4% | 8.4% | 11.9% | 16.5% |
| Equity to Assets | 6.0% | 5.9% | 5.6% | 5.6% | 5.9% |
| CET1 Ratio | 9.8% | 10.1% | 10.3% | 10.3% | 10.6% |
| NPA ratio | 7.53% | 6.15% | 4.98% | 3.97% | 2.78% |
| Provisions/Loans | 2.48% | 1.83% | 1.77% | 0.91% | 0.54% |
| PPP ROA | 1.55% | 1.79% | 1.65% | 1.58% | 1.59% |
CreditSights View
AS OF 19 May 2023SBI is the largest bank in India and a well-run franchise. Government support underpins SBI’s relative positioning, while fundamentally, SBI 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 Indian public sector banks. We thus like the SBI name for what it offers. Following a swift deterioration in asset quality post the delta variant outbreak, there has been a sustained improvement and restructured loans are low. FY23 performance was solid with good NIM improvement and loan growth, as well as asset quality. We maintain a M/P reco on the name.
Recommendation Reviewed: May 19, 2023
Recommendation Changed: December 07, 2020
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