Dalal Street Investment Journal - - ANALYSIS -

State Bank of In­dia is the first bank es­tab­lished in In­dia and was ini­tially named as Bank of Cal­cutta. SBI is In­dia’s largest com­mer­cial bank in terms of as­sets, de­posits, branches and num­ber of cus­tomers and em­ploy­ees.

SBI is among the lead­ing com­mer­cial banks which have in­tro­duced the use of the lat­est dig­i­tal tech­nol­ogy. Digi­ti­sa­tion is ex­pected to re­duce costs and im­prove pro­duc­tiv­ity at SBI.

The bank has seen an im­pres­sive 13 per cent growth in in­ter­net bank­ing over pre­vi­ous year and the share of mo­bile bank­ing (value of trans­ac­tions) stands at 44.37 per cent.

The bank is com­mit­ted to­wards trans­form­ing into a fully-digi­tised or­gan­i­sa­tion, sup­ported by tech­no­log­i­cally ad­vanced back-end op­er­a­tions.

The Gov­ern­ment of In­dia’s drive to­wards de­mon­eti­sa­tion has given a strong push to the pop­u­lar­ity of dig­i­tal bank­ing.

We be­lieve that these dig­i­tal tools and tech­nol­ogy can com­pletely trans­form the dis­tri­bu­tion reach of SBI'S bank­ing ser­vices and the bank­ing cy­cle time in gen­eral. The ben­e­fits are im­mense: By digi­tis­ing in­for­ma­tion-in­ten­sive pro­cesses, costs can be re­duced sig­nif­i­cantly and turn­around times can be im­proved re­mark­ably. These ef­forts are ex­pected to pos­i­tively im­pact the ef­fi­ciency and pro­duc­tiv­ity of SBI and are es­sen­tial for be­ing an en­dur­ing value cre­ator. In FY2017 the ag­gre­gate de­posits for SBI reg­is­tered a multi-year high growth of 18.14 per cent to ₹20,44,751 crore from the pre­vi­ous year level of ₹17,30,722 crore.

The sav­ings bank ac­counts saw good growth of around 27.81 per cent fol­low­ing de­mon­eti­sa­tion. This higher growth of SBI'S de­posits com­pared to all sched­uled com­mer­cial banks' growth has pushed up the mar­ket share by 38 bps to 18.05 per cent in March 2017.


In FY2017, the bank’s op­er­at­ing profit in­creased by 17.55 per cent on an an­nual ba­sis, de­spite de­mon­eti­sa­tion and a se­vere drought in South In­dia. The op­er­at­ing profit crossed the ₹50,000 crore-mark to touch ₹50,848 crore for FY17. How­ever, the bank’s net profit growth re­mained flat at 5.36 per cent Y-O-Y. The bank sourced much of its rev­enue from its strong per­for­mance in non-in­ter­est in­come, profit on sale of in­vest­ments, forex in­come and an over­all re­duc­tion in cost-to-in­come ra­tio to 47.75 per cent. The CASA ra­tio of the bank im­proved to 45.58 per cent for FY2017, keep­ing the net in­ter­est mar­gin at a healthy level of 2.84 per cent.

The bank posted a more slug­gish rise in its non-per­form­ing as­sets (NPAS) in FY2017 at ₹1,12,343 crore as com­pared to the pre­vi­ous year. The gross NPAS as of March 2017 stood at 6.90 per cent, up by 40 bps, while the net NPAS de­clined by 10 bps to 5.26 per cent on a year-on-year ba­sis. The bank’s ag­gre­gate de­posits wit­nessed a multi-year high growth of 18.14 per cent to ₹20,44,751 crore as against ₹17,30,722 crore in the pre­vi­ous year. This rise was largely at­trib­uted to a rise in sav­ings bank ac­counts post de­mon­eti­sa­tion. A large por­tion of the de­posits re­mained with the bank, de­spite eas­ing of with­drawal lim­its.

De­spite ad­verse con­di­tions in FY17, the bank main­tained a healthy cap­i­tal ad­e­quacy ra­tio and re­mained well-cap­i­talised to ab­sorb shocks and also keep its growth tra­jec­tory in­tact. The cap­i­tal ad­e­quacy of the bank un­der Basel III stood at 13.11 per cent in March 2017 and the Tier 1 stood at 10.35 per cent. The bank in­creased its cap­i­tal dur­ing the year by ₹28,828 crore, while its fresh AT1 cap­i­tal in­creased by ₹9,100 crore for the cor­re­spond­ing pe­riod.


State Bank of In­dia is the cor­po­rate agent of SBI Life In­sur­ance and SBI Gen­eral In­sur­ance. The bank has a dis­tri­bu­tion agree­ment with SBI Mu­tual Fund, SBI Cards and Pay­ment Ser­vices and SBI Cap Se­cu­ri­ties for dis­tribut­ing their prod­ucts.

The bank dis­trib­utes the mu­tual fund prod­ucts of UTI Mu­tual Fund, Tata Mu­tual Fund, Franklin Tem­ple­ton Mu­tual Fund, L&T Mu­tual Fund, ICICI Mu­tual Fund, and HDFC Mu­tual Fund. The bank’s branches are also autho­rised to open pen­sion ac­counts un­der the

Na­tional Pen­sion Sys­tem. The bank reg­is­tered a re­mark­able 58.80 per cent in­crease in its cross-sell­ing in­come to ₹776.61 crore in FY17 on a year-on-year ba­sis. The in­come from SBI Life reg­is­tered a 37.79 per cent in­crease to

₹464.60 crore in FY17. The in­come from SBI Gen­eral In­sur­ance in­creased by 46.46 per cent on a year-on-year ba­sis. In the mu­tual fund seg­ment, the com­pany recorded a growth of 188.67 per cent in its in­come at ₹178.72 crore on a yearly ba­sis. Fur­ther, the num­ber of Sys­tem­atic In­vest­ment Plan (SIP) ac­counts grew by 54.16 per cent to 3,70,004 dur­ing the cor­re­spond­ing fis­cal.


With grow­ing tech­no­log­i­cal prow­ess in the fi­nan­cial sec­tor and sig­nif­i­cant merg­ers, post-re­cov­ery from the global fi­nan­cial cri­sis, the Asia-pa­cific bank­ing gi­ants have largely out­per­formed the global bank­ing sec­tor. The con­sol­i­da­tion of firms in the sec­tor is not only help­ing

the sec­tor fare bet­ter, but also en­hanc­ing their reach by pen­e­trat­ing fur­ther­more to new re­gions, both do­mes­ti­cally and in­ter­na­tion­ally. In In­dia, the bank­ing sec­tor has con­stantly been un­der the lime­light through FY17 on ac­count of ris­ing as­set qual­ity is­sue in the first half of the year and de­mon­eti­sa­tion in the sec­ond half. While de­mon­eti­sa­tion largely dis­rupted the econ­omy, it re­sulted in a surge of de­posits and ad­vances in the In­dian bank­ing sys­tem, re­viv­ing the sav­ings de­posit ac­counts from a de­clin­ing trend over the last three years to a growth 11 per cent in de­posits in the post-de­mon­eti­sa­tion pe­riod. How­ever, the credit off­take de­clined to a 63-year low of 5.1 per cent in FY17 on the back of low credit de­mand from cor­po­rates. In the cor­re­spond­ing pe­riod, per­sonal loan seg­ment, es­pe­cially the hous­ing and per­sonal loans seg­ments, wit­nessed an in­crease. Banks sur­passed the tar­get of ₹1.80 lakh crore of Mu­dra Loans for FY17, ac­count­ing for about 2 per cent of all sched­uled com­mer­cial banks' loan port­fo­lio.

The in­crease in de­posits post-de­mon­eti­sa­tion hiked the CASA de­posits by 4 per cent and the in­creased liq­uid­ity, cou­pled with low credit growth, led the banks to slash their MCLR rates by about 90 bps in early 2017. De­mon­eti­sa­tion also brought the dig­i­tal chan­nels in the lime­light and re­sulted in a sharp in­crease in the trans­ac­tions in all dig­i­tal modes of pay­ments used by banks. Dig­i­tal bank­ing grew to about ₹2,500 bil­lion in 2017, as against ₹950 bil­lion in April 2016. The dig­i­tal bank­ing sphere saw a strong pres­ence of SBI. The con­sol­i­da­tion of SBI with five of its as­so­ciate banks and Bharatiya Mahila Bank, pro­vided SBI an en­try into the top 50 global banks in terms of bal­ance sheet size. Con­sol­i­da­tion in the bank­ing sys­tem at large is ex­pected to en­able the banks to ra­tio­nalise their re­sources and re­sult in sig­nif­i­cant cost-sav­ing in their op­er­a­tions.

The bank­ing sec­tor re­mained at the cen­tre of the gov­ern­ment's ini­tia­tives. Prad­han Mantri Jan Dhan Yo­jna (PMJDY) dras­ti­cally in­creased the num­ber of ac­counts and the amount of de­posits. The sec­tor also wit­nessed a de­cline in the zero bal­ance ac­counts un­der PMJDY. The sec­tor also wit­nessed an ad­di­tion of a new cat­e­gory of banks - whole­sale and long-term fi­nance banks ded­i­cated to lend­ing to in­fra­struc­ture sec­tor and small, medium and cor­po­rate busi­nesses. As a con­se­quence of grow­ing NPAS and higher pro­vi­sion­ing, the banks largely saw a de­clin­ing trend in their net profit as also their re­turn on as­sets (ROA) and re­turn on eq­uity (ROE) in FY17. The bank­ing sec­tor reg­u­la­tors have ex­ten­sively in­tro­duced mea­sures and poli­cies to cut down the NPAS, one of the ma­jor poli­cies be­ing the In­sol­vency and Bank­ruptcy code.


With the pres­sure points tip­ping over, the world econ­omy re­mains in the clutch of a slug­gish growth rate, struc­tural un­em­ploy­ment and grow­ing geopo­lit­i­cal tur­moil, even in 2017. The in­cli­na­tion to­wards pro­tec­tion­ism is in­creas­ing in ma­jor world economies such as the US and the EU. The EU has found it­self at a cross­road in its tryst with fi­nan­cial sta­bil­ity. All these fac­tors have con­jointly brought about a wave of un­cer­tainty around the pos­i­tive global growth out­look for 2017. The two sub­ver­sive de­vel­op­ments that are ex­pected to take cen­tre stage in the up­com­ing pe­riod are a de­clin­ing trend in glob­al­i­sa­tion and a growth in dig­i­tal flows. While a de­cline in glob­al­i­sa­tion is largely looked upon as a loss of op­por­tu­nity, the lo­cal­i­sa­tion of pro­duc­tion will sprout good re­vival and growth prospects for the In­dian econ­omy. De­spite sur­mount­ing chal­lenges of strained ex­ports, ris­ing need for em­ploy­ment gen­er­a­tion, growth in farm pro­duce and in­fra­struc­ture, am­bi­gu­ity re­gard­ing pol­icy re­forms and the need for struc­tural changes, the In­dian econ­omy is still bustling with hope. How­ever, for In­dia to ma­te­ri­alise this hope, the Na­tional Pol­icy on Stan­dards must be drafted soon, GST must reach a log­i­cal con­clu­sion by the end of the year, the land ac­qui­si­tion dis­putes must be re­sorted to achieve ‘Hous­ing for All by 2022’. On the other hand, a per­sis­tent growth in the fun­da­men­tal cou­pled with low in­fla­tion, growth in agri­cul­tural pro­duce, de­cline in power short­ages will stim­u­late the idea of a thriv­ing econ­omy in the near fu­ture. Amidst all this, bank­ing sec­tor re­mains the fo­cal point of eco­nomic growth. The con­sol­i­da­tion in the sec­tor with merger of as­so­ciate banks is set­ting the tone for the fu­ture con­sol­i­da­tion in the sec­tor to reap the ben­e­fits of economies of scale and com­pet­i­tive man­age­ment prac­tices. The over­all en­vi­ron­ment, along with the mone­tary and fis­cal poli­cies, look con­ducive for a sta­ble eco­nomic growth, equipped with am­ple liq­uid­ity in the econ­omy af­ter de­mon­eti­sa­tion and grow­ing pri­vate in­vest­ment as a re­sult of con­sol­i­da­tions.


De­spite the eco­nomic de­ter­rents in FY17, State Bank of In­dia posted a strong fi­nan­cial per­for­mance for the dur­ing the fi­nan­cial year. The bank wit­nessed a stark in­crease in its prof­its and its CASA ra­tio also im­proved. The NPAS of the bank wit­nessed slow growth. The bank posted a multi-year high growth in its de­posits and the cap­i­tal ad­e­quacy ra­tio re­mained healthy. The bank’s cross-sell­ing in­come re­ported a re­mark­able in­crease. Be­sides the fi­nan­cial prow­ess, State Bank of In­dia boasts of a growth con­ducive en­vi­ron­ment and ef­fec­tive growth prospects with sup­port­ive gov­ern­ment ini­tia­tives and re­forms. Fur­ther­more, lead­ing the bank­ing sec­tor by ini­tia­tives such as rate cut and con­sol­i­da­tion, SBI re­mains pro­gres­sive and ahead of its peers. The way for­ward for the bank looks bright and promis­ing. We rec­om­mend in­vestors to HOLD State Bank of In­dia.

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