SBI Analysis: A Safe Choice or A Skip Option?

Boasting a 48+ crore customer base, with 6.07 crore customers hailing from the digital platform 'YONO', everyone knows the State Bank of India. Also known as the “Imperial Bank of India”, SBI is the “bank of the people” in the true sense. Any new schemes, plans, or financial upgrades, everything related to money begins its journey from here.

Financially, SBI has maintained a good ROE track record of 14.06% for the past 3 years, with CASA at 42.67% of total deposits.

The picture from the outside looks sparkly clean, but is everything shiny in SBI’s backyard? In this article, we will look past the impromptu “lunch breaks” reputation SBI is famous for and drill deep into what’s most important.

Let’s begin the analysis by knowing what’s up with the banking sector.

Banking Industry Analysis

India's banking industry stands at a pivotal juncture, with global growth expected to fall from 3.4% in 2022 to 3.0% in 2024. This International Monetary Fund (IMF) prediction indeed paints a concerning picture for the sector. But the reason for this decline gives a good idea for upcoming advancement.

From rapid digitization to regulatory reforms, the sector is undergoing a dynamic transformation, presenting both challenges and exciting opportunities. Amidst worldly affairs, the industry is poised for sustained growth and transformation, as it is facing a confluence of trends reshaping its future.

Let’s take a roundoff of the further changes the banking sector is bound to witness for the upcoming fiscal year:

a. Inflation Diving: While overall price hikes are projected to dip from 8.7% in 2022 to 7.0% in 2023 due to cheaper commodities, the cost of daily essentials like housing and utilities might not drop as quickly.
b. Digital Revolution: Fintech startups and mobile banking disrupt traditional models, creating a more accessible and efficient financial ecosystem. Aadhaar-based payments and UPI have further fueled financial inclusion.
c. Public Sector Banks (PSBs): PSBs still dominate the landscape but face challenges with non-performing assets and operational inefficiencies. Government reforms aim to revitalise them, which in turn will affect SBI’s growth prospects as it’s the largest PSB in India.
d. Gross Domestic Product: India's GDP grew by a solid 7.2% in 2023, fueled by rising investment and consumer spending.

Among the four categories of the banking sector (namely Public, Private, Foreign, and Regional), total assets in the public sector have increased to a whopping $1.69 trillion, adding up to ₹140.27 lakh crore.

In the ever-expanding asset numbers of PSB, SBI is relaxing at the top with its peers, trying to slowly catch up with the bull.

About State Bank of India

Along with being one of the largest, SBI is also leading the PSB sector in India in terms of market capitalisation. Just look at the infographic below. 👇

Leaving its peers behind in the dust, SBI has been winning the game for a while now. Not only in market cap, but SBI also leads as the personal, home, and education loan provider. It is also recognized as the 1st bank in India to expand its presence globally.   

SBI is planning on increasing its international loan book 12-13% high on a Y-o-Y basis. This raise can be contributed due to the rising demand from Indian corporates and finance firms.

Segment Dissection Under SBI:

1. Treasury:

Imagine this as the bank's investment department. This segment encompasses the management of the bank's financial assets and foreign exchange exposure. It actively engages in portfolio optimisation, trading (including derivatives), and risk hedging.

Revenue for this segment primarily derives from trading fees, capital gains/losses, and investment income.

2. Corporate/Wholesale Banking:

Think of it as the bank's big business partners. This segment caters to the lending and transactional needs of large corporations & institutional clients. Its services include commercial loans, structured finance, trade finance, and cash management solutions.

Non-treasury operations of foreign offices are also categorized under this segment.

3. Retail Banking:

This segment is the one you and I deal with the most. It offers a broad spectrum of personal banking products and services, including deposit accounts, loans, credit cards, wealth management, and insurance. It also manages agency business and ATM network operations.

4. Other:

This segment encompasses activities not readily classifiable under the previous three categories. It may include specific lending verticals, niche financial products, or subsidiary operations.

Now, that you are aware of the underworkings, wondering how well is SBI performing in all its segments? Is everything rainbows and unicorns with SBI when it comes to numbers? Let’s find out.

Quick Glance at SBI’s Financials

With ₹44,23,778 crore as deposits and Net Interest Income (NII) of ₹1,44,841 crore, SBI shows a 9.19% and 19.99% Y-o-Y growth for FY23. This increase expresses a rising profitability for SBI. A higher NII also indicates that the bank is earning more from its lending and investing activities than it is paying out on its own borrowing and deposits.

The total assets by 2023 at ₹55,16,979 crore increased a good 10.61% from ₹49,87,597.41 crore at the end of March 2022. The bank's loan portfolio witnessed a 17.02% jump to ₹31,99,269.30 crore from ₹27,33,966.59 crore.

SBI SWOT Analysis: Dissecting Good & Bad

To give you a clearer idea, analyzing the strengths, weaknesses, opportunities, and threats SBI presents is important.

Strengths:

a. Market Leader: SBI enjoys a massive market share in India, boasting:

• 22.99% of total deposits
• 19.68% of total advances
• 26.25% of debit card spends
• 29.90% of ATMs
• 23% of total assets
• 26% in remittances
• 20.89% in mobile banking transactions in value

b. Strong Branch Network: With over 22,000 branches and 65,627 ATMs, SBI boasts the largest physical presence in India, ensuring wide reach and customer accessibility.

c. Government Ownership: As a public sector bank, it benefits from:

• Implicit government guarantee, boosting investor and depositor confidence.
• Access to cheaper capital, aiding loan offerings and profitability.

d. Diversified Portfolio: It has a well-diversified portfolio across retail, corporate, and wholesale banking, mitigating risk exposure to any single segment.

e. Robust Brand Recognition: SBI possesses a strong brand image and legacy in India, fostering trust and customer loyalty.

Weaknesses:

a. Bureaucracy and Inefficiency: Being a PSB, SBI can face issues with decision-making speed and operational efficiency compared to private banks.

b. High NPA Ratio: SBI’s Non-Performing Assets (NPA) ratio stands at 0.67% for FY2023, raising concerns about loan quality and profitability. This percentage has been declining for a while now, but there is still space for further decrease.

c. Technology Gap: Although SBI has modernized its technology, it sometimes lags behind private banks in digital offerings and customer experience. We all remember the “server down” excuses from SBI employees in our branches, right?

d. High Employee Costs: With over 2,35,858 employees, SBI faces high manpower costs impacting profitability while offering limited scope for skill enhancement.

e. Focus on Traditional Banking: Compared to private banks, SBI might exhibit a slower adoption of innovative financial products and services.

Opportunities:

a. Digital Banking Boom: India's rapid digital adoption presents opportunities for SBI to strengthen its online and mobile banking offerings, attracting tech-savvy customers.

b. Financial Inclusion Drive: Government initiatives on financial inclusion provide scope for SBI to expand its reach to underserved rural and semi-urban areas.

c. Credit Growth Potential: India's projected economic growth indicates rising demand for credit, particularly in infrastructure and MSME sectors, where SBI can leverage its strengths.

d. Focus on Profitability: Increased emphasis on improving returns on assets and equity by addressing NPAs and streamlining operations can boost shareholder value.

Threats:

a. Competition from Private Banks: Private banks pose serious competition to SBI with their agility, tech-driven products, and superior customer service.

b. Macroeconomic Risks: A slowdown in economic growth, rising interest rates, and global uncertainties can adversely impact loan growth and profitability.

c. Regulatory Risks: Regulatory changes and stricter capital adequacy norms can impose further pressure on SBI's margins and credit expansion.

d. Fintech Disruption: Fintech startups present a growing threat, offering innovative financial solutions that could challenge SBI's core business.

e. Talent Acquisition and Retention: Attracting and retaining skilled professionals in a competitive environment can be challenging for SBI.

Peer Comparison: Is SBI the Best in the Field?

As we discussed earlier in the article, SBI is leading the PSB unit in terms of market share with 25%. Along with a large market share, strong brand, government backing, and diversified portfolio, it also has a few weaknesses.

High NPA ratio, bureaucratic inefficiencies, and high employee costs are some of them. In terms of assets, competitors like Punjab National Bank, Bank of Baroda, Union Bank of India, and Canara Bank fall under the same category and are thus fit to be SBI’s peers.

Here are the other areas to consider while analyzing a bank and its competitors:

The Bottom Line

With banking companies showing a downfall in Q3 of FY24, the eyes of investors (novice and experienced likewise) are a bit cautious. Banks leading their sectors, such as SBI and HDFC, are facing a bit more reserved calls in the investing area.

However, the State Bank of India has backing from the government of India and RBI. By embracing digital innovation, streamlining operations, and capitalizing on growth opportunities, SBI can not only retain its leadership but also unlock its full potential as a powerhouse driving India's economic engine.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.