State Bank Of India

State Bank Of India

Market Cap- 2.96 lac cr
CMP- 332
Book Value- 250

1. Overview
SBI is the largest state owned bank in India having a market capitalization of roughly 3 lac cr. PSU banks have had a rough 5 odd years owing to abnormal rise in NPAS arising from mostly the 2004 to 2014 era. The bank spent nearly 4 years 2016 to 2019 to provide and take out all the BAD LOANS’ poison as we call it. After going through this bank there are a lot of facts we found very interesting.
They have 33 cr Debit Cards in circulation which equals to a fourth of the entire population of India. 1.2 cr credit cards of SBI are in service. SBI today services 1/3 rd population of our country, describes the reach of this brand.
Their Provisions alone for the last 4 years have been a massive 2,30,000 cr, equals the size of entire loan book of Kotak Mahindra Bank. Their PCR (Provision Coverage Ratio) is at 79%, this ratio was 61% in 2016. A higher PCR only suggests a strengthened balance sheet. Their provisions in most NCLT 1 cases are at 100 percent.
Their blended cost of funds comes to only 5% so they have a significant advantage over most other banks.
Their Proportion of CASA stands at 45.1 percent.
They have 35% of India’s market share for Home Loans as well as 35% of share for Auto Loans. SBI’s retail Loans Are Growing at 20% plus for them.


We see tremendous value in them for the following reasons:

a. SBI LIFE : They own near about 70 percent and this has a market cap of about 85,000 thereby giving them a value of about 60,000 cr.
b. SBI Cards : They own 74 percent of this and latest reports suggest they getting a valuation of about 1,00,000 cr for this subsidiary giving this a value of about 74,000 cr.
c. SBI AMC : HDFC AMC with a AUM of 3.4 lac cr has a market cap of about 60,000 cr. I would give them a similar value of about 60,000 cr.
d. SBI General : Approx Value 15,000 cr assumption
e. SBI Caps : Approx Value 15,000 cr assumption

Sum total : Approx 2 lac cr

As one can see the value in subsidiaries nearly total the market cap of the bank itself, providing significant downside cushion. This also holds significance as banks will dilute at good prices aiding future capital needs for the banks and aid loan growth once the cylce turns positive.
SBI can easily dilute its subsidiaries as and when need for capital arises as it has shown recently with the SBI Life Stake Sale

3. Digital Initiatives

The share of alternate transactions in the bank is 90% (Mobile 56%).

Digital market share is at 22.5% of mobile transaction value and 40% of transaction value is one of the highest in India.

Share of digital transactions continues to be on the rise with increased adoption of digital payment modes.

Mobile has become the main choice with a 3x increase in share of digital payments in the past 2yrs.

Yono is a big hidden asset of SBI with 13mn user base with 3mn unique logins each day on App accounts for 60% of new savings account openings with 80% reduction TAT

30% productivity improvement in loan processing / 20% productivity improvement.

Cross sell potential into subsidiaries. 1.5 cr salary account holders in the bank provide a large base for SBI.

IT budget of Rs 1,700 cr with 60% allocated towards new investment (Yono/ Data warehousing / cloud services etc)

This bank having provided for a massive 2.3 lac cr in the past 4 years has a good pipeline for recovery owing to IBC and NCLT cases. Though these things have taken much longer than expected they seem to be going through at a slow pace.
Even if they manage an overall recovery of 50% it will be a good recovery of about 1-1.2 lac cr. Such recoveries interestingly go directly to the PBT levels. Management has guided for 30,000 cr of recoveries by FY22.
SBI PCR is at 79% means their balance sheet is strengthened to handle future NPAs upto a great extent.
IL & FS has already been provided. Proivisioning in the range of 40-50% extent done for jet airways and DHFL. Provisions in many probable stressed sector like Steel is at 90%.

Their book is growing at 8-10% in a subdued environment and can easily grow in the 15-18%. The main point here is that lending practices seem to have improved at least over the past few years.
NPAs coming out from post 2014 lending seem to be much lower than previous era leading me to believe that the NPA cycle has turned at least for now.
Their credit deposit ratio is also low at 68% and can be stretched to at least 85% indicating heavy room for lending.
At his last interview the CMD mentioned having 1 lac cr surplus liquidity ready to be lent. Total liquidity in the system is 3 lac cr. So the financial system is well out of the shock phase. Now credit growth needs to pick up.

The Essar deal & SBI Cards IPO will free up further capital for SBI that can be lent in an economic recovery. The money lent can be around 1 lac cr.

6. NPA’s
From having a block of NPA at around 2,30,000 cr their net NPA has come down to 62,000 cr after provisioning and writeoffs. Thus the balance sheet is quite clean after a lengthy process and now having a strong recovery pipeline can get further cleaned. Also with higher credit growth these percentages will shrink further. As NPAs drop further in percentage terms also will reflect in them having a much higher price to book than they enjoy today.

7. Key triggers
ESSAR STEEL resolution alone will give them a writeback of 15,000 cr and Bhushan Power a writeback of approx. 8,000 cr as they have provided a full 100 percent for these.

SBI Cards: Offloading 10-12% stake for 7,000-8,000. Valuing the company at 80,000-1,00,000 cr.

All these triggers will help SBI in growth capital for future lending. Given a 5 times leverage ratio, the above capital infusion can help SBI lend another 1,00,000 cr.
China has four state owned banks in the 15-25 lac cr market cap range. We see SBI go from being one in the top 10 market cap companies in India to at least the top 3 in the next few years. If India has to grow to the various targets we see this has the potential to be part of that without a doubt.

8. Key Balance Sheet Figures

SBI ROE at 15% & ROA at 1.5% peaked during 2012-13.

FY22, SBI can do a PAT of 30,000-40,000 cr translating to return ratios of 2012-13.

SBI on renewed strength can command a market cap of 6-6.5 lac cr market cap translation a target of 600-650.

9. Key Risks

Continuous mergers of smaller banks into SBI for better management. We will of course have to see the course of NPA’s and how the cycle plays out and in my opinion that would be the single largest risk to everything that I have mentioned.



















9. Key Risks