SBI – Potential Turnaround play in PSU Bank space


CMP 325

Market Cap 2.9 lac cr

Potential Turnaround play in PSU Bank space

  • SBI is the largest state owned bank in India having an AUM of 25 lac cr market capitalization of roughly 3.2 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. SBI has spent 5 years from 2014-19 to provide for all the toxic assets and bad loans.
  • Their Provisions alone for the last 4 years have been a massive 2.3 lac cr, equals the size of entire loan book of Kotak Mahindra Bank. Their provisions in most NCLT 1 cases are at 100 percent. Even if SBI manage an overall recovery of 40 percent it will be a good recovery of about 90,000 cr. Such recoveries interestingly go directly to the PBT levels.
  • Their PCR (Provision Coverage Ratio) is at 81%. This number was 61% in 2016. SBI has significantly strengthened their balance sheet to handle future asset quality stress. In FY19 & FY20, SBI has absorbed and comfortably provided for all the exposure in IL&FS, DHFL & Jet Airways.
  • They have 33 cr Debit Cards in circulation which equals to a fourth of the entire population of India. 1.2 cr credit cards. SBI cards can also add as a key trigger in the near term.

Their blended cost of funds comes to only 5% so they have a significant advantage over most other banks.

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