STATE BANK OF INDIA: WILL THE ELEPHANT DANCE?

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 STATE BANK OF INDIA: WILL THE ELEPHANT DANCE?

State Bank of India having largest network of 22000 branches is now showing signs of remarkable performance in future and in coming decade the valuation should increase multifold.

Recently SBI chairmen using a tag line saying elephants can also dance. Is the State Bank of India ready to dance now?
It seems that SBI have gathered the required muscles for any elephant to dance. For dancing, the muscle has to be very strong so that is something which they are focusing on for quite some time and now it looks like that the largest government owned bank is in a position to dance. For the first time the intrinsic value of the State Bank of India is being acknowledged by the market. Let me describe the key positive factors which explain the reason why it looks like to be a real value creator of future.

 It is expected that the GDP growth in year FY21-22 would be around 11%. Normally we have seen that the credit growth in the system is slightly better than the growth in GDP. So, with that kind of a situation for 11% GDP growth, we can expect the credit growth to be somewhere around 12% to 13%.  As per Morgan Stanley SBI has a significant amount of excess liquidity with loan-deposit ratio at close to 60 per cent which should allow it to generate loan growth of 10-12 per cent over the next 2-3 years. Margins at net interest income to increase reasonably well looking at having enough liquidity.

Right from the beginning, at State Bank of India, we have seen retail asset books continuing to grow at a very healthy pace. Not only that, the quality has been very good as well. These are some of the factors which gives a very happy feeling about the bank. Retail loans now contribute 35 per cent of overall loans compared with 20 per cent five years back. The share of relatively less risky loans has also moved up. SBI's retail asset quality remains superior to other PSU banks and is in line with that of large private banks. At the end of FY20, SBI’s gross non-performing assets (GNPA) ratio in the retail segment was 1.1 per cent, lowest among PSBs, and third in the entire banking space. 

 On the asset quality front, SBI has done well. Their balance sheet is very strong now as they have been continuously provisioning for past several years and are so much at par with the major private sector banks in terms of NPAs. 

Focus on digitization: SBI has maintained its market share (in terms of deposits and digital parameters) Registered users on its YONO app have jumped from 7.3 million in Q4FY19 to nearly 33 million in Q3FY21.

SBI’s Subsidiaries having strong presence in all the financial services like Insurance, Mutual funds, credit cards etc., making it a financial conglomerate in the country.

Financials:

Market Capitalization: Rs. 350000 Cr., Price to Book: 1.5, EPS: 25.98, PE Ratio: 15.2

Recommendation:

Strongly recommended to accumulate for value creation.

-Rajendra Jhanwar

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