State Bank of India

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Fundamental View

AS OF 25 Aug 2022
  • 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, although we assess that risk as low.

  • The bank’s capital adequacy ratios are higher than most of its PSB peers, though it could do with a higher buffer.

Business Description

AS OF 25 Aug 2022
  • 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 84% 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 25 Aug 2022
  • Similar to other PSBs, SBI has a large SME and mid-corporate book. These segments will likely bear the compounding effects of both higher costs of goods and financing costs disproportionately, especially since their finances have been stretched over the pandemic period. 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.

  • The bank’s size and systemic importance would mean increased priority when it comes to state 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.

Key Metrics

AS OF 25 Aug 2022
INR mn 1Q23 FY22 FY21 FY20 FY19
Net Interest Margin 3.02% 3.12% 3.04% 2.97% 2.78%
ROA 0.48% 0.67% 0.48% 0.38% 0.02%
ROE 8.5% 11.9% 8.4% 6.4% 0.4%
Equity to Assets 5.8% 5.6% 5.6% 5.9% 6.0%
CET1 Ratio 10.0% 10.3% 10.3% 10.1% 9.8%
NPA ratio 3.91% 3.97% 4.98% 6.15% 7.53%
Provisions/Loans 0.61% 0.91% 1.77% 1.83% 2.48%
PPP ROA 1.02% 1.58% 1.65% 1.79% 1.55%
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CreditSights View

AS OF 25 Aug 2022

SBI 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, the sustained improvement that followed as well as the bank’s low restructured loans provide us with comfort in the name. 9MFY23 has shown both good NIM improvements and strong loan growth. We maintain a M/P reco on the name.

Recommendation Reviewed: February 07, 2023

Recommendation Changed: December 07, 2020

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