State Bank of India (SBI) : Synopsis
State Bank of India (SBI) : Synopsis
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Table of Content
Content Page No.
1. Investment Highlights 03
2. Company Profile 07
4. Key Concerns 08
5. Financials 09
8. Industry Overview 14
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Investment Highlights
State Bank of India, the largest commercial bank in India reported results for the quarter
ended on Dec.31, 2009. Its consolidated net profit stood at Rs 33,045.90 million for the
quarter ending on Dec.31, 2009 as against Rs 36,076.10 million for the quarter ending on
Dec.31, 2008, a fall of 8.40%. Interest earned stood at Rs 249,484.50 million for the quarter
ending on Dec.31, 2009 against Rs 254,945.50 million for the quarter ending on Dec.31, 2008,
a fall of 2.14%. The Total Income for the quarter ending on Dec.31, 2009 stood at Rs
322,314.50 million against Rs 303,181.40 million for the quarter ending on Dec.31, 2008, a
rise of 6.31%. Interest expended stood at Rs 161,667.50 million for the quarter ending on
Dec.31, 2009 against Rs 174,437.80 million for the quarter ending on Dec.31, 2008, a fall of
7.32%. During the quarter, the EPS of the Bank stood at Rs 52.05 for the equity share of Rs
10.00 each.
Treasury 53131.0
Unallocated 3687.8
Total 211454.0
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• Plans to hire 27,000 staff, open 1,000 more branches this year
India's largest lender State Bank of India is planning to hire more than 27,000 people across
its various divisions this year. It is planning to recruit 20,000-22,000 people in the clerical
segment and 5,500 people at the probationary officer level .As part of its strategy of
enhancing focus on rural operations, it will be deploying 2,000 probationary officers in rural
areas. The banking major may also go for lateral recruitments in the middle-management
level this year. Last year, the bank had recruited around 25,000 people.
The banking giant also plans to add another 1,000 branches this year with a view to increase
its presence in new centres, which will take the total number of branches to 13,000. Besides,
SBI also aims to ramp up the number of ATMs to 25,000 by the end of this fiscal. The bank is
also planning to launch a wealth management division to take care of high net worth
individuals' (HNIs) needs.
The country's largest lender, State Bank of India (SBI) has launched its new product 'SBI Gift
Card', a prepaid card accepted in all Visa outlet shops across the country. With the launch of
this product, the scheme which was earlier introduced in a few branches on a pilot basis
would now be available in all SBI branches in Hyderabad for customers’ convenience. The SBI
card is a perfect substitute to gift in the form of gift articles, gift vouchers and cash.
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• SBI to install 7,000 talking ATMs for visually challenged
India`s largest lender, State Bank of India plans to introduce 7,000 voice enabled ATMs across
the country for visually challenged customers. Out of its 18,500 ATMs, 7,000 will be made
voice enabled for visually challenged people. It expects to launch these talking ATMs by end
of this month. These voice enabled ATMs, customised with headphones and braille key pads,
will offer services like funds transfer and downloading of account statements.
Credit rating agency, CARE has reaffirmed AAA rating assigned to the various outstanding long
term instruments (including Perpetual Bond & Upper Tier II Bonds) issued by State Bank of
India (SBI) aggregating to Rs 241,744 million. Instruments with this rating are considered to be
of the best credit quality, offering highest safety for timely servicing of debt obligations. Such
instruments carry minimal credit risk.
• Aditya Birla Group, SBI Card partner to offer co-branded credit cards
Aditya Birla Group and SBI Card enter into a partnership to offer co-branded credit cards to all
customers of the Aditya Birla Group companies. The Aditya Birla Group - SBI co-branded
credit cards will be available to over 28 million customers of Aditya Birla Group companies,
namely Aditya Birla Retail, Aditya Birla Financial Services Group (which includes Birla Sun Life
Insurance and Birla Sun Life Mutual Funds), IDEA and Madura Garments. The initiative will be
led by the financial services arm of the Aditya Birla Group – Aditya Birla Financial Services.
State Bank of India has concluded an issue of USD 100 million senior debt fixed rate bonds.
The bonds have a maturity period till Oct. 23, 2014. It carries a coupon of 4.50% p.a. payable
semiannually under the medium term note (MTN) program.
State Bank of India has signed a memorandum of understanding with auto maker Honda Siel
Cars India for providing retail financing to customers. Under the agreement, the state-run
lender will be the preferred financier for the entire range of vehicles marketed by Honda Siel
Cars India (HSCI). The MoU aims at targeting high-end customers who will be availing car loan
from SBI above Rs 0.50 million. SBI has come out with a special scheme called SBI Advantage
Car Loan Scheme for this niche segment.
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• SBI, IAG insurance JV to begin operations
State-run State Bank of India announced that its joint venture (JV) Co in association with
Insurance Australia Group (IAG) is expected to commence commercial operations in the first
half of the calendar year 2010 subject to final approvals from Insurance Regulatory and
Development Authority (IRDA).
The bank, for its general insurance subsidiary has made an investment of Rs 1.11 billion
towards the 74% share of the equity capital of SBI General Insurance Company. Also, IAG
International, a subsidiary of Insurance Australia Group (IAG) has made an investment Rs.
5.42 billion (including share premium) towards 26% share of the equity capital of SBI General
Insurance Company.
Government has granted sanction to State Bank of India, under Section 35(1) of the State
Bank of India Act, 1955, vide Department of Financial Services letter dated October 8, for
proceeding with the negotiation with State Bank of Indore for acquiring its business.
Consequently, the scheme of acquisition of State Bank of Indore by the State Bank of India
has been approved by Board of both the Banks.
State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) have entered
into definitive agreement with T. Rowe Price for proposed divestment of 6.5% stake in UTI
Asset Management Company and UTI Trustee Company. All these banks currently hold 25%
share in each of the above company. Post divestment, banks` shareholding in each of these
companies will be reduced to 18.5%.
State Bank of India has extended its special home loan scheme at 8% interest rate by over
four months to 31st March, 2010, a move which would provide relief to small home loan
borrowers. The bank, which offers the special scheme under `My Home Campaign`, offers 8%
fixed interest rate for 5 years for loans up to Rs 5 lakh, with a maximum tenure of 10 years.
For loans above Rs 5 lakh and up to Rs 50 lakh, interest rate has been fixed at 8% during the
first year and 8.5% during second and third years.
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• Plans to Open 23 branches overseas by March 2010
State Bank of India, which enjoys the largest overseas presence among local lenders, will be
opening 23 more branches abroad over the next two months. This will take the total number
of SBI branches in foreign countries from 137 to 160, enabling the lender to consolidate its
position as a financial services conglomerate in the international scene. SBI currently derives
around 12% of its total revenue from the overseas market. The banking giant plans to open
10-11 new branches in Nepal, where it has the largest foreign presence taking its total
branch-strength from 37 to 48. In Washington, where the PSU lender has representative
office, the bank plans to open one branch shortly that will undertake a mix of business
activities, including retail banking.
SBI plans to open five new offices in the UK and one in South Africa. Presently, SBI has seven
branches in UK and three in South Africa. The banking major also aims to expand its
operations in Maldives and Mauritius by opening three branches each in both markets,
strengthening its physical presence. In Doha Qatar Financial Centre, SBI plans to open a full
service branch by the end FY'10 and is currently awaiting the regulatory approvals, to go
ahead with the proposal.
Company Profile
State Bank of India is the nation's largest commercial bank. SBI along with its associate banks
operate more than 14,000 branches within India. State Bank of India has more than 50 offices
in nearly 35 other countries, including multiple locations in the US, Canada, and Nigeria. The
bank has other units devoted to capital markets, fund management, factoring and commercial
services and brokerage services.
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Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. EPS P/E (x) P/BV (x) Dividend (%)
(As on Feb. (Rs. Mn.) (Rs.)
15, 2010)
Key Concerns
• The Banking industry is very competitive and the ability of banks to grow depends on their
ability to compete effectively.
• Banking in India is a heavily regulated industry and material changes in the regulations could
adversely affect Banks business.
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Financials
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Quarterly Ended Profit & Loss Account (Consolidated)
Description 3m 3m 3m 3m
E=Estimated
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Charts
B) P/E Chart
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C) Debt-Equity Chart
D) P/BV Chart
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1 Year Comparative Graph
• At the market price of Rs.1893.60, the stock trades at 9.62x and 8.83x for the earnings of
FY10E and FY11E respectively.
• Price to Book Value of the stock is expected to be at 1.41x and 1.21x respectively for FY10E
and FY11E.
• Earning per share (EPS) of the bank for the earnings of FY10E and FY11E is seen at Rs.196.85
and Rs.214.54 respectively for equity share of Rs.10.00 each.
• Net Income of the bank is expected to grow at a CAGR of 17% over FY08 to FY11E.
• SBI plans to add another 1,000 branches this year with a view to increase its presence in
new centres, which will take the total number of branches to 13,000.
• State Bank of India has signed a memorandum of understanding with auto maker Honda
Siel Cars India for providing retail financing to customers.
• State Bank of India and Macquarie Group launched the Macquarie-SBI Infrastructure Fund
(MSIF), which will invest in infrastructure projects in India.
• State Bank of India plans to introduce 7,000 voice enabled ATMs across the country for
visually challenged customers.
• SBI, IAG insurance JV is expected to commence commercial operations in the first half of the
calendar year 2010 subject to final approvals from IRDA.
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• State Bank of India, which enjoys the largest overseas presence among local lenders, will be
opening 23 more branches abroad by March 2010.
• We recommend ‘BUY’ in this particular scrip with a target price of Rs.2120.00 for Medium
to long term investment.
Industry Overview
• With the economic growth picking up pace and the investment cycle on the way to recovery,
the banking sector has witnessed a transformation in its vital role of intermediating between
the demand and supply of funds. The revived credit off take (both from the food and non
food segments) and structural reforms have paved the way for a change in the dynamics of
the sector itself. Besides gearing up for the compliance with Basel II accord, the sector is also
looking forward to consolidation and investments on the FDI front.
• Public sector banks have been very proactive in their restructuring initiatives be it in
technology implementation or pruning their loss assets. Windfall treasury gains made in the
falling interest rate regime were used for writing off the doubtful and loss assets.
Incremental provisioning made for asset slippages have safeguarded the banks from
witnessing a sudden impact on their bottom lines.
• Retail lending (especially mortgage financing) formed a significant portion of the portfolio for
most banks and the entities customized their products to cater to the diverse demands. With
better penetration in the semi urban and rural areas the banks garnered a higher proportion
of low cost deposits thereby economizing on the cost of funds.
• Apart from streamlining their processes through technology initiatives such as ATMs,
telephone banking, online banking and web based products, banks also resorted to cross
selling of financial products such as credit cards, mutual funds and insurance policies to
augment their fee based income.
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Global Outlook
The global economic environment continues to be uncertain. The world economy, which was
passing through unprecedented financial turmoil since August 2007, experienced a jolt in
September 2008 when the failure of Lehman Brothers led to widespread panic across global
financial markets. The liquidity crisis that ensued not only engulfed developed markets but also
quickly transmitted to emerging markets, including India. The US Federal Reserve responded by
infusing dollar liquidity into large financial centres through currency swap arrangements with
major foreign central banks in addition to massive injection of liquidity in the domestic market
through several innovative schemes.
Domestic Outlook
Like other EMEs, India too has been affected by the global financial crisis. Real GDP growth
moderated to 7.8 per cent in the first half of 2008-09 as against 9.3 per cent in the first half of
2007-08. The third quarter of 2008-09 witnessed signs of further moderation in growth,
especially in the industrial sector and some segments of the services sector.
Over the last five years, India clocked 8.8 per cent average annual growth, driven largely by
domestic consumption and investment even as the share of net exports rose. While the benign
global environment, easy liquidity and low interest rates helped, at the heart of India’s growth
have been its growing entrepreneurial spirit and rise in productivity. These fundamental
strengths continue to be in place. Nevertheless, the global crisis will dent India’s growth
trajectory as investments and exports slow. Clearly, there is a period of painful adjustment
ahead of us. However, once the global economy begins to recover, India’s turnaround will be
sharper and swifter, backed by our strong fundamentals and the untapped growth potential.
Meanwhile, the challenge for the Government and the Reserve Bank is to manage the
adjustment with as little pain as possible.
Liquidity Impact
The cumulative reduction in the CRR by 400 basis points since mid-September 2008 released
additional Rs.1,60,000 crore of primary liquidity. Unwinding of MSS has released primary
liquidity of a little over Rs.63,000 crore. Further, potential liquidity has been made available
through various refinance facilities for banks and financial institutions to the tune of Rs.80,000
crore. The term repo facility gives an additional potential liquidity of Rs.60,000 crore. The SPV
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for NBFC will augment potential liquidity by another Rs.25,000 crore. In sum, the actions of the
Reserve Bank since mid-September 2008 have resulted in augmentation of actual/potential
liquidity of over Rs.3,88,000 crore. In addition, the permanent reduction in SLR by 1.0 per cent
of NDTL has made available liquid funds of the order of Rs.40,000 crore for the purpose of
credit expansion.
Monetary Measures
• The Bank Rate has been kept unchanged at 6.0 per cent.
• The repo rate under the LAF has been kept unchanged at 4.75 per cent.
• The reverse repo rate under the LAF has been kept unchanged at 3.25 per cent.
• The Reserve Bank has the flexibility to conduct repo/reverse repo auctions at a fixed rate or at
variable rates as circumstances warrant.
• The Reserve Bank retains the option to conduct overnight or longer term repo/reverse repo
under the LAF depending on market conditions and other relevant factors. The Reserve Bank
will continue to use this flexibly including the right to accept or reject tender(s) under the LAF,
wholly or partially, if deemed fit, so as to make efficient use of the LAF in daily liquidity
management.
• The cash reserve ratio (CRR) of scheduled banks has been kept unchanged at 5.0 per cent of
NDTL.
Liquidity Facilities
The Reserve Bank has allowed banks to avail liquidity support under the LAF for the purpose of
meeting the funding requirements of mutual funds (MFs), nonbanking financial companies
(NBFCs) and housing finance companies (HFCs) through relaxation in the maintenance of SLR up
to 1.5 per cent of their NDTL. Second, a special refinance facility for scheduled commercial
banks (excluding RRBs) was provided by the Reserve Bank on November 1, 2008 under Section
17(3B) of the RBI Act, 1934 up to 1.0 per cent of each bank’s NDTL as on October 24, 2008. Both
these facilities are currently available up to June 30, 2009. In order to ensure that banks
continue to have flexibility in their liquidity management operations in the current market
conditions, it has been decided to extend both the refinance facilities up to September 30,
2009.
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Key points
• Demand- India is a growing economy and demand for credit is high though it could be
cyclical.
• Bargaining power of customers- High during periods of tight liquidity. Trade unions in public
sector banks can be anti reforms. Depositors may invest elsewhere if interest rates fall.
• Bargaining power of borrowers- For good creditworthy borrowers bargaining power is high
due to the availability of large number of banks
• Competition High- There is public sector banks, private sector and foreign banks along with
non banking finance companies competing in similar business segments.
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Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for
the purchase or sale of any financial instrument or as an official confirmation of any transaction.
The information contained herein is from publicly available data or other sources believed to be
reliable but we do not represent that it is accurate or complete and it should not be relied on as
such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in
the information contained in this report. This document is provide for assistance only and is not
intended to be and must not alone be taken as the basis for an investment decision.
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