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About State Bank of India State Bank of India (SBI) is the largest bank in India.

The bank traces its ancestry back throughthe Imperial Bank of India to the founding in 1806 of the Bank of Calcutta, making it the oldestcommercial bank in the Indian Subcontinent. The Government of India nationalised the ImperialBank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it theState Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India.SBI provides a range of banking products through its vast network in India and overseas,including products aimed at NRIs. The State Bank Group, with over 16000 branches, has thelargest branch network in India. With an asset base of $250 billion and $195 billion in deposits,it is a regional banking behemoth. It has a market share among Indian commercial banks of about 20% in deposits and advances, and SBI accounts for almost one-fifth of the nation’s loans.SBI has tried to reduce its over-staffing through computerizing operations and Golden handshakeschemes that led to a flight of its best and brightest managers. These managers took theretirement allowances and then went on the become senior managers at new private sector banks.The State bank of India is 29th most reputable company in the world according to Forbes. Fundamental Analysis: Fundamental analysis refers to the study of the core underlying elements that influence theeconomy of a particular entity. It is a method of study that attempts to predict price action andmarket trends by analyzing economic indicators, government policy and societal factors within abusiness cycle framework. The fundamental analysis of a company involves the followingparameters:1. Macroeconomic Analysis2. Industry Analysis3.

Macroeconomic Analysis:  Change in rates by RBI: Looking at the changing scenario. Thus. These rates have a direct relation withBank’s performance and in turn share prices are linked with bank’s performance. When it entered India.To a fundamentalist. if the investor found through analysis that the intrinsic value if a stock wasbelow the market price for the stock. the investor would sell the stock from their portfolio or takea short position in the stock . among other things. . or trading at fair marketvalue? With fundamental analysis. are available and examined. this may be done by applying the concept of intrinsic value. cost of operations. RBI keeps on changing rates such as Repo Rate. If theintrinsic value of a stock is above the current market price. then theresulting analysis is said to provide the intrinsic value of the stock. achange in these rates or even a speculation of change in these rates affects share prices.Company AnalysisHow does an investor determine if a stock is undervalued. the market price of a stock tends to move towards its intrinsic value.Reverse Repo Rate and Cash Reserve Ratio. global changes also affects Indianeconomy.  Global Analysis: Any change in global economy or in other words. and industry structure. However. If all the information regarding a corporation's future anticipated growth. the investor would purchase thestock. the share market crashed literally. sales figures. For example: The recession was first observed in USA and later on it caught itslead in other countries too. overvalued.

change in Basel norms. some restriction would follow andthis will definitely affect share prices. This effect suggests that inflation reduces bank lending to the private sector.  Effect of monetary policy on Banking Sector: Monetary policy affects banking sector in many ways. and it may happen that those foreign banks mayoutperform and leave our own banks far behind.  Change in Governments Policy: The government takes desired steps and keeps on reviewing its policies. incomplete contracts and imperfect bank competition. Because of imperfect information. etc form a part of important government policies. monetary policy may affect banks’ loan supply.Itaffected many banks as ICICI and others. which is consistent with the view that a sufficiently high rateof inflation induces banks to ration credit. rules. orindirectly by improving borrowers’ net worth and. In particular. A change in FDI and FII inflow restrictions. resulting in loss of people’s confidence towardsbanks. by reducing the agency costs of lending . One way is through creditmarkets. EXIM regulations.  Effect of Inflation on banking operations: Several economists have found that countries with high inflation rates have inefficientlysmall banking sectors and equity markets. hence. expansivemonetary policy may increase banks’ loan supply directly (bank lending channel). For example if government allows entry of foreign banksin India. Thus. then competition would rise. regulationsand procedures. entry exit barriers forforeign banks in India.

They thenhave an incentive to take on high-risk projects. Larger banks would prefer to take over or mergewith another bank rather than spend the money to market and advertise to people. 3. .Cheques are in a decline phase of their life cycle and use of cheques is declining rapidly andbeing replaced by electronic bill pay and debit cards. They do this by offering lower financing. Internet Banking and Electronic Bill payare in their growth phase as more and more customers are using these services. There may be an economic crisis in the country if the banksstop functioning for some days.. One cannot imagine the cessation of thebanking activities even for a day. Industry Analysis: Life Cycle Analysis: Bank plays an important role in the economic development of the country. The entire commercialand industrial activities are well knitted with the banks.So overall. In the long run. but this also causes banks to experience a lower ROA. preferred ratesand investment services. the banking industry is in a GROWTH PHASE. as new measures are being adoptedovertime so as to make transactions speedy and easy away from competitor banks.Banks are like any other business in that they produce goods and services to customers. we're likely to see moreconsolidation in the banking industry. the banking business was confined to receiving of deposits and lending of money. The banking sector is in a race to see who can offer both the bestand fastest services. Like anyother businesses. Cards or ChequeCards are in their maturity phase as they are accepted by nearly everyone. their products have life cycles. But the modern bankers undertake wide variety of functions to assist their customers.In the early days.

Despite a debilitating economic environment. the projected EPS is 143.00Bid: 2099.00 .54 16/09/09EPS (Rs) 143.Company Analysis: Last Trade: 2.76 Jun.00 . For the nextfew quarters.2100. 09Sales (Rs crore) 17. as it is given.60 Prev Close: 2. The stock currently trades at a P/B.9 35.62. so as to have more profits.67 Mar. While the growth inthe first three quarters was led by NII. and larger provisioningoutlay required due to rising delinquencies.00Volume: 603.00Ask: 2100. State Bank of India exhibited a strong bottom-linefor FY09.025.009.25Open: 2.1.54= 2088. 09Face Value (Rs) 10Net profit margin (%) 12.089.67 * 14.2 bn.636Avg Vol (3m) : 511. The Bank's FY09 net profit increased 35. 91.0052wk Range: 894. it would be better to hold the stock.96 Since the stock prices are expected to rise and there is not much difference between the intrinsicvalue and market price.67 and P. 09Last dividend (%) 290 11/05/09Return o n average equity 15. which we believe is high considering the uncertainty regarding thequantum of the Bank’s delinquencies and .03 Mar. we foresee SBI’s bottom-line to be pressured by declining yields.585 Report card Attribute Value DatePE ratio 14.00Day's Range: 2021.74 Mar. 09To determine the intrinsic value.472.Therefore. the intrinsic value is calculated as follows:Intrinsic value = Projected EPS * Appropriate PE Ratio= 143.5% yoy to Rs.E ratio is 13. in Q4'09 it was dependent on other income. higher coststructure.

ICICI Bank (10.16%).52x). downgrade our rating to Hold . Asset Turnover and Financial Leverage.Besides Return on Assets has seen consistent gradual improvement over last 3 years toreach 1 percent -much better than ICICI Bank's (0. or Axis Bank (12. Wesee limited upside from current levels and therefore. both NetMargins and Asset Turnover is lower than other banks. butfalling much short of HDFC Bank's magnificent 1. comparable to Axis Bank's (1.the growth in SBI Life’s new-business premium.71%). FY09 financial leverage is down to a more conservative 15.58x). In State Bank of India case.However to its credit.State Bank has been recording relatively high Return on Equity ranging from 16% to 22% inearlier years -due to high financial leverage employed.42 percent .77x). There are only three levers for boostingROE -Net Margin. It is the higher Financial Leverage thathas been boosting up Return on Equity for SBI -which is not a very good sign.74 still at muchhigher levels than other banks like HDFC Bank (11.


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