Fundamental Analysis Of SBI: The Indian banking sector is regulated by the Reserve Bank Of India, a government entity that reserves the right to regulate the banking industry in India. This includes payments, financing, printing currencies, lending, and the application of firms to create banks.
The Indian banking system has 12 public sector banks and 22 private sector banks, which make up most of the banking sector. Among all the PSU banks, one stands out as a titan in the industry – SBI. We’re going to perform the fundamental analysis of SBI, using its FY 22 annual report. By the end of the article, you’ll have an idea of its performance and growth.
Company Overview
Before we go into the main course of this article, let’s begin our article with an interesting starter – A simple story. Bhuvan is a fairly successful businessman. He owns a chain of stores that sell ice cream in his city and he’s looking to expand operations to other major metros in India.
Now expanding his business is necessary and inevitable since he has built a brand for himself in Bengaluru already. If he wants to buy his next Mercedes and visit the Mikonos for a family vacation again, his business needs to grow, and enter other cities like Mumbai, Delhi, and Hyderabad. The catch is growth needs money.
Remember that Bhuvan is a businessman, and he didn’t build a small empire by selling his stores every time he needed money. He could have sold a stake in his company, but that meant having a smaller slice of the pie. The third option, which millions of business owners like Bhuvan choose, is to go to the bank. And not just any bank. We’re talking about the biggest public sector bank in the country – SBI.
SBI: India’s largest PSU Bank
Among the two sectors of the banking sector, SBI comes under the public banking sector and is the biggest bank in its sector. SBI (State Bank Of India) is a bank with over 200 years of history. It is headquartered in Mumbai and has a handful of records to its name, such as:
- 46.77 Crore Customers
- 227 Offices Around The World
- 22,266 Branches
- 27.58% market share in debit card spending
- 65,030 ATMs and ADWMs
- 95.5% share in transactions on alternate channels
SBI is in the business of accepting deposits and lending at interest from customers of different tranches (individuals, businesses, large corporations, public bodies, and other entities). Besides this, they also offer insurance, investing, credit, and many other financial services.
Our latest take on the banking sector is going to take you through the fundamental analysis of SBI, an Indian banking titan with a two-century history. To understand certain ratios and performance metrics of SBI, you, dear reader will need to have a general overview of the banking sector and where it’s headed.
The Banking Industry: Overview
Continuing with our story, Bhuvan has finally decided that he wants to expand his brand of ice cream stores and takes it one city at a time, starting with Mumbai. The bank lends him the funds he needs to set up shop in Mumbai. But, they don’t necessarily give it to him out of charity. The bank will charge an interest rate on his loan, which he will have to pay regularly over a five-year period.
But where did the bank get the money? It’s not every day that someone has crores lying around and ready to issue to anyone who comes at the door asking for it.
The answer is you, me, and everyone who has an account with the bank. Banks take deposits, promising to pay a certain amount of interest, and lend it to businesses like Bhuvan’s at a higher rate of interest. Idle cash is one of the most dangerous things for banks and they have to make money work for them. Otherwise, they will be paying interest on idle cash, which will put their balance sheets and income statements in the red.
Total assets in the banking sector increased to US$ 2.67 trillion in 2022. Out of the total figure, US$ 1.59 trillion of assets were from the public banking sector and US$ 0.92 trillion were from the private banking sector. (IBEF)
Banking is also taking a shift from traditional banking to online banks, digital payments, seamless UPI transactions, and quick loan approvals that have made financial services more accessible to the general public.
Fundamental Analysis Of SBI
From an investor’s perspective, we’re going to do a fundamental analysis of the SBI, as best as we can, using information from the company’s FY 22 annual report.
SBI – Financials
Revenues & Net Profit Growth
| Financial Year | Net Interest Income | Net Profits |
| FY 2018 | 74,854 | -6,547 |
| FY 2019 | 88,349 | 862 |
| FY 2020 | 98,085 | 14,488 |
| FY 2021 | 1,10,710 | 20,410 |
| FY 2022 | 1,20,708 | 31,676 |
All banks mainly earn their income through financing interest. The company earned a net interest income of ₹1,20,707 crores in FY 22, a 9.03 percent increase from FY 21 (₹1,10,710 Crores). Five years prior, SBI had a net interest income of ₹74,854 crores. Their net profits have also improved well over the years, from a net loss of ₹6,547 crores in FY 18 to a net profit of ₹31,676 crores in FY 22. The PSU bank is seeing its best year in terms of profitability and interest income.
Advances, Deposits & CASA Ratio:
| Financial Year | Advances (Rs. In CR) | Deposits (Rs. In CR) | CASA Ratio |
| FY 2018 | 19,34,880 | 27,06,344 | 44.68% |
| FY 2019 | 21,85,877 | 29,11,386 | 44.55% |
| FY 2020 | 23,25,290 | 32,41,621 | 44.17% |
| FY 2021 | 24,49,498 | 36,81,277 | 45.40% |
| FY 2022 | 27,33,967 | 40,51,534 | 45.51% |
The table above shows the growth of SBI’s Advances and deposits over a 5-year period. While deposits have grown substantially over the years, advances have moved slower in the last three years. This is a slight concern as banks earn interest on advances lent to borrowers, and a slowdown in advances could mean slower revenue growth in the future.
The CASA ratio shows how much of a bank’s total deposits are in current as well as savings accounts. It is calculated using the formula,
CASA= CASA Deposits/Total Deposits.
The 5-year CASA ratio shows that there has been marginal movement. A higher ratio would have meant that the bank would get money at a lower cost but since the figures have barely moved over the years, this is not the case.
Non Performing Assets
| Financial Year | Net NPA |
| FY 2018 | 5.73% |
| FY 2019 | 3.01% |
| FY 2020 | 2.23% |
| FY 2021 | 1.50% |
| FY 2022 | 1.02% |
By definition, NPAs or Non-performing assets are the credits, advances, and loans given by banks to borrowers which are not bringing in money for the bank. This is mainly due to the borrower defaulting on principal and interest payments for at least 90 days. SBI’s 5-year net NPA movement shows a notable reduction in its net NPA, all the way from 5.73 percent to 1.02 percent in FY 22. For a bank of this size and scale, this is a very positive trend as NPAs can be very expensive for banks and their balance sheets.
Return Ratios: ROE & ROA
| Financial Year | ROE | ROA |
| FY 2018 | -3.78 | -0.19 |
| FY 2019 | 0.48 | 0.02 |
| FY 2020 | 7.74 | 0.38 |
| FY 2021 | 9.94 | 0.48 |
| FY 2022 | 13.92 | 0.74 |
In the past 5 years, SBI has turned itself around, from a negative ROE of -3.78 percent (FY 18) to a moderate and positive ROE of 13.9 percent (FY 22). The same cannot be said for its Return on Assets, which has moved fractionally in 5 years. This leaves a lot of room for improvement from SBI’s end.
Fundamental Analysis Of SBI – Key Metrics
| CMP | ₹ 541 | Market Cap (Cr.) | ₹ 4,82,643 |
| EPS | ₹ 52.8 | Stock P/E | 10.3 |
| ROCE | 4.44 % | ROE | 12.2 % |
| Face Value | ₹ 1.00 | Book Value | ₹ 342 |
| Promoter Holding | 57.5 % | Price to Book Value | 1.59 |
| Industry P/E | 12.7 | Dividend Yield | 1.30 % |
| Net Profit Margin | 12.8 % | Operating Profit Margin | 38.2 % |
Future Plans Of SBI
Already aware that most banking services are going digital, SBIs adopted the digital transformation through their own app, called YONO. The application already has over 111 million downloads. The application has several features, including UPI payments, and pre-approved personal loans.
The bank has made account opening quicker and more efficient, by introducing video KYC, where customers can open accounts conveniently. This feature has been used to open 6.4 lakh accounts as of March 2022.
SBI isn’t just the biggest PSU bank in India. They’re also India’s biggest home loan lender and to make the process of loan application easy, they introduced Retail Loan Management Solution (RLMS) and a Vendor Verification Module (VVM). Their application YONO is being marketed for the growth of SBI’s home loan business.
SBI’s insurance subsidiary, SBI Life Insurance, is still among the top insurers with fierce competition from private insurers. It witnessed a growth of 23.4 percent in total new business premiums, whereas its industry grew 12.9 percent.
Besides banking and insurance, SBI has its own AMC – SBI Funds Management Ltd. The AMC saw a phenomenal growth of 28.2 percent in FY 2022, adding 31.59 lakh new folios in FY 2022.
In Closing
SBI is a huge banking empire, spanning every nook and corner of India. With a shift in banking to digital transformation and the use of UPI reaching all-time records, India will overtake some major economies to become a central hub of banking. Business owners like Bhuvan and depositors like you and me are directly dependent on SBI for our banking needs.
With that, we conclude this article on the fundamental analysis of SBI. We hope you found this article informative and educational. Happy Investing!
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