SBI Share Price - Will It Rally?

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SBI Share Price - Will It Rally?

State Bank of India Introduction

The rich legacy of the State Bank of India (SBI) spans as far as the Indian Independence movement to the current resurgence of India as a global superpower. Over the years, Indian banking has metamorphosed from lending primarily to the agricultural sector to the retail sector mirroring a shift in the economy from agri-based to service sector-based. 

SBI Business Segments

Credits Overview

As you might be aware, banks are unlike any other businesses in terms of the products they offer and the revenues they generate. Products consist of loans and other financial services whereas revenues are generated from the net of interest earned and interest expended, generally speaking. Let’s look at what constitutes SBI’s credit portfolio. 

Compared to the previous quarter, the Retail Personal segment has seen a 15% growth showing an increasing trend in home loans, auto loans, Xpress credit, personal gold loans, and other personal segment loans. Out of these, Xpress Credit saw the highest increase of 28.5% over the previous financial year. Xpress Credit is a special loan given to employees of Central and State Governments and employees of other such qualified institutions. 

Deposits Overview

Banks generally have a liking toward Current Account and Saving Account Deposits (CASA). The reason? Simple. CASA deposits offer a relatively cheaper alternative for banks compared to term deposits. Banks need to pay less interest on CASA accounts (over 2-4%), to raise more funds. 

As per the chart, CASA makes up 45.28% of all the deposits, a drop compared to 46.13% last year. SBI had a CASA ratio of 45% compared to its peer HDFC Bank which had 48% in FY22. 

SBI Financial Highlights
Figures compared to HDFC Bank, ICICI Bank, Bank of Baroda & Punjab National Bank data. All data expressed are standalone figures. Source: 

  • Net Interest Income (NII) is the difference between the interest earned and the interest paid to account holders. The NII has been on an increasing trend with a CAGR of 10.03% in the last 5 years. 
  • Net Interest to Margin (NIM) is Net Interest Income divided by Interest Generating Assets like Cash balance with RBI, Call money balances with Banks, Investments, and Advances. SBI had one of the lowest NIMs in FY21 compared to its peers and an average overall in the remaining years.
  • Cost to Income Ratio is the ratio of operating expenses to operating income. This helps in assessing the profitability of the banks. The less, the better and more profitable. SBI fared better than its peers in the latest FY22, while in FY20 the ratio increased due to an increase in deposit interests paid to account holders. 
  • Net Profit increased by over 55% compared to the previous year as Provision for NPAs decreased by around 48% compared to the previous year.
  • Return on Equity was in the upper quartile in FY22 compared to the other banks, a significant improvement compared to last year. In the previous years, low ROE was mainly due to low profitability. 

Non Performing Assets of SBI

Non Performing Assets (NPAs) are those loans that have not been paid for a period of 90 days or more. This standard was adopted by the Indian banks beginning the fiscal year 2004-05 to reflect international best practices and greater transparency. NPAs are further classified as Sub-standard, Doubtful, and Loss Assets on the basis of the time period for which loans are due.  

Improvement in Asset Quality

One of the best ways to assess the quality of assets of a bank is by looking at the slippage ratio. Slippage measures the number of standard assets falling under the NPA category in a given period. Low slippage or no slippage ratio bears well for the banks as it shows good asset management in practice. 

  • SBI has shown a decrease in slippages by 12.4% in FY22 compared to FY21. 
  • In 2014, RBI introduced the reporting of Special Mention Accounts(SMA) to help tackle NPAs. SMA-1 are those assets that are overdue between 31-60 days, and SMA-2 are those assets overdue between 61-90 days. 
  • SMA-1 accounts had a drop of 36% and SMA-2 accounts decreased dramatically by 92% from FY21.
  • Strong earnings buoyed by a resurgence in economic activity across sectors helped Gross NPAs declined by 13% CAGR over the last 5 years. 
  • Credit rating agency ICRA warned that the current rise in inflation, interest rate increases, and the ongoing Russia-Ukraine crisis can affect the asset quality in banks in the coming periods. 

SBI Share Price Movement

Banking sector stocks are majorly affected by interest rate risks, regulatory risks, and counterparty risks. You can observe the fall in the share price post interest rate hikes from its peak in January. Share price went up at the end of the previous financial year reflecting positive economic sentiments and future growth prospects. Check out the SBI share price today.

Analysts Review

IIFL Securities: “Buy

  • Cited SBI’s pre-provision operating profit to be in line with estimates and profit 6% above expectations for a buy rating.
  • “Corporate RoA (PBT) saw a sharp expansion and the overall RoA improvement was driven by decadal-low credit costs. SBI is showing strong momentum across segments and stress loans are well provided.” the analyst said.
  • Target Price: ₹620, an upside of 37% from the current level.

Motilal Oswal: “Buy”

  • SBI’s asset quality improved considerably, fresh slippages were controlled at ~1% of loans, which is lower than its peers. 
  • The analyst expects credit costs to be lower compared to long-term trends by ~0.9%. 
  • Target Price: ₹600, upside of 35%.