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Global Research - India
Global Investment House
State Bank of India
Reuters Code: SBI.BO Listing: Bombay Stock Exchange National Stock Exchange London Stock Exchange Ahmedabad Stock Exchange Kolkata Stock Exchange Chennai Stock Exchange
Current Price: Rs 1,223 (Jan 12, 2007)
• State Bank of India (SBI) has history of more than 200 years of existence. SBI is the largest commercial bank in India and accounts for approximately 18% of the total Indian banking business and the group account for 25% of the total Indian banking business. The central bank, Reserve Bank of India (RBI) is the largest shareholder in the bank with 59.7% stake followed by overseas investors including GDRs with 19.78% shareholding as on September 06. RBI’s stake in the bank is likely to be transferred to the Government of India (GOI). SBI has the largest distribution network in India spread across every nook and corner of India. As on September 06, the bank has 14,061 branches which include 4,755 branches of its associated banks. The bank also has the largest network of 5,624 ATMs. Since the last ﬁve years the bank has showed continued growth in its core business. The total asset size of the bank reported a CAGR of 9.4% during the period FY01-FY06 and stood at Rs.4,938.69bn as of September 2006. In H1FY07, the bank reported net interest income (NII) of Rs.182.14bn, representing a growth of 2.74% over H1FY06 while the bank reported a net proﬁt of Rs.19.8bn, registering a decline of 18.67% during the same period. Credit off take of the bank has been lower than the Indian banking industry during the past few years. The total credit book of the bank grew at a CAGR of 18.2% over the last ﬁve years and stood at Rs2,832.68bn at the end of September 2006. The industry growth during the same period was around 28%. The bank’s asset quality has improved over the past few years. Gross NPL to gross loans stood at 3.57% as of Sep-end 2006 while net NPLs stood at 1.67%. The bank has provided for 54.06% of its NPLs as on Sep-end 2006, which is below the industry average of around 68%.
State Bank of India
Global Research - India
Global Investment House
Total deposits of the bank grew at a CAGR of 9.4% over the last ﬁve years to reach Rs3,800.5bn, with low cost deposits registering an impressive CAGR of 15.4% during the same period. Contribution of low cost deposit to total deposit during the period too has moved up sharply from 36.3% in FY01 to over 47.6% in FY06. However, current and saving account (CASA) contribution in H1FY07 has declined to 43.65%, thereby signiﬁcantly increasing cost of funds and hence margin contraction. On a sequential basis, margins of the bank declined by 8bps to 3.32%. The capital adequacy ratio of the bank stood at 12.63% (Tier-I of 8.74% and Tier-II of 3.89%) at the end of H1FY07. To augment its CAR to provide a stable platform for further growth, the bank plans to raise upto Rs.100bn as subordinate debt during the next few months. The bank also has a cushion to raise further Rs40bn in the form of Hybrid Tier 1 capital. SBI has been a net seller in the bond market and is using its excess investments to fund its loan growth. As on September 2006, investment book size of the bank stood at Rs1,470bn which declined from Rs1,650bn as of March 2006. Of the total book size, Rs1,020bn is in Held To Maturity (HTM). Of the Available for Sale (AFS) book, the duration of the portfolio of less than two years has been maintained, with mark-to market cushion up to 8.12%. SBI is the market leader in the Indian banking space. At the CMP, stock trades at 14.5x and 12.1x of its earnings for FY07E and FY08E respectively and 3.3x and 2.96x of its adjusted book value. We have valued SBI on a sum-of-the-parts methodology to capture the true value of the associate banks and non-banking businesses. SBI has seven associate banks and comprised a signiﬁcant portion of the book value. Similarly, other businesses of the bank are growing signiﬁcantly faster than the core banking business and will make an increasing part of the market value. We initiate our coverage of SBI with a Hold rating and value the bank’s share at an intrinsic value of Rs.1,209 based on the sum-of-the-parts valuation methodology. Though the bank is the proxy for Indian economic growth, the current market price already captures the future growth potential. Hence, we recommend a Hold on the stock with a medium term perspective.
State Bank of India
446 53.356 139.007 44.223 Year 2008 (E) 2007 (E) 2006 2005 Shares in Issue 526.367 44.84 1.6bn BVPS ROAE Rs.6 8.1.1 14.379/684 P/E (x) 12.4 586.3 83.7 84.3 457.643.7 81.2 15. (%) 655.0 525. Source: SBI and Global’s Estimate Chart 1: Share Price movement vis-à-vis BSE Sensex and BSE Bankex 16000 14000 12000 10000 Index 8000 6000 4000 2000 0 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 600 400 200 0 1400 1200 1000 800 SBI share price (Rs) SENSEX Bankex SBI Source: Bombay Stock Exchange January 2007 State Bank of India 3 . while those for future years are based on market price on the Bombay Stock Exchange as on Jan 12.784 156.454 160.India Global Investment House Table 1: SBI at a glance Price ( As on Jan 12 2007) Rs.067 43.4 52 week price range Rs.8 Market Cap Rs.5 11.2 17.3mn Net Interest Net proﬁt Income Rs. 2007.0 P/BV (x) 1. 100.44 Historical P/E & P/BV multiples pertain to respective year-end prices. mn 181.Global Research .045 EPS Rs.4 16.1.0 19.87 2. Mn Rs.09 1.
The bank has a branch network of over 14. Mr.19% clerical staff and the remaining 25.Global Research . P. The bank provides a full range of corporate. Chennai Stock Exchange and Ahmedabad Stock Exchange while its GDRs are listed on the London Stock Exchange. Bhatt would be a key to SBI’s future growth momentum.3%. net interest margin (NIM) of the bank has gone up from as low as 2.51% are ofﬁcers.7% stake. Bhatt is the Chairman of the bank. 4 State Bank of India January 2007 . The positions of CFO and the head of treasury have been segregated. SBI has the largest branch and ATM network spread across every corner of India. Bhatt was Managing Director at State Bank of Travancore. O. The management’s thrust on growth of the bank in terms of network and size would also ensure encouraging prospects in time to come. The bank is listed on the Bombay Stock Exchange. With this type of strong base. correspondent relationship with 520 International banks in 123 countries. Mr.000 branches (including subsidiaries).774 as on 31st March. in existence for more than 200 years.32%.30% were sub-staff. National Stock Exchange. The bank had total staff strength of 198.40% in FY06 and currently is at 3. The bank is capitalized to the extent of Rs.India Global Investment House State Bank of India Background State Bank of India is the largest and one of the oldest commercial bank in India. Mr. In recent past. the senior management of the bank has been broadened considerably. Mr. T S Bhattacharya is the Managing Director of the bank and known for his vast experience in the banking industry. Recently. Prior to this appointment. We believe that the appointment of Mr.9% in FY02 to 3. reviewing and approving the annual budgets and borrowing limits and ﬁxing exposure limits. 2006. Of this. Bhatt will expire in March 2011. Indian central bank namely Reserve Bank of India (RBI) is the major share holder of the bank with 59. Kenya and Indonesia. SBI group accounts for around 25% of the total business of the banking industry while it accounts for 35% of the total foreign exchange in India. and new heads for rural banking and for corporate development and new business banking have been appointed. 45. SBI has displayed a continued performance in the last few years in scaling up its efﬁciency levels. Apart from Indian network it also has a network of 73 overseas ofﬁces in 30 countries in all time zones. Kolkata Stock Exchange. Management SBI has a strong and experienced management The bank has 14 directors on the Board and is responsible for the management of the bank’s business. Bhatt has had the best of foreign exposure in SBI.3% during the last ﬁve years. Bhatt has more than 30 years of experience in the Indian banking industry and is seen as futuristic leader in his approach towards technology and customer service. SBI has acquired banks in Mauritius. commercial and retail banking services in India.646bn with the public holding (other than promoters) at 40. The board in addition to monitoring corporate performance also carries out functions such as approving the business plan. 29. The ﬁve-year term of Mr. During the same period. Mr. Net Interest Income of the bank has witnessed a CAGR of 13.
9% Financial Institutions / Banks 6.India Global Investment House Shareholding & Liquidity Reserve Bank of India is the largest shareholder in the bank with 59.443 375. mn) No.7% Reserve Bank of India Mutual Funds / UTI 11. Indian ﬁnancial institutions held 12. Post this.718 243.Global Research .574 3.14% 264. But the sentiment in the stock market improved in the ﬁrst six months of the current ﬁscal with the bank clocking further gains.107 1.0% Overseas investors including FIIs/OCBs/NRIs GDR Issue Others Source: SBI As of Sep 2006.999 79.3% 6. which will further improve its CAR and Tier I ratio.22% down from 0. The daily share turnover during the year 2006 was 0.643.168.7% stake followed by overseas investors including GDRs with 19.22% 0.303 92. Chart 2: Shareholding Pattern of the Bank as on 30th September 2006 8. mn) Source: Bombay Stock Exchange Mar-2004 Mar-2005 Mar-2006 H1 2007 502.39% 0.7% to 51.410 84. SBI will have a further headroom to dilute the GOI’s stake from 59.528 0. SBI has 526. of transactions Market Capitalisation (Rs. 2007 bank’s market capitalisation stood at Rs.39% witnessed in 2005.0%. 93mn shares exchanged hands.731 295.840 457. RBI is the monetary authority and having majority shareholding reﬂects conﬂict of interest.3% while Indian public held just 8.2% of the stock.817 244.223. In the ﬁrst half of FY2007.155 243.530 176.570.3mn shares outstanding and going by the actual trading volume. the stock’s liquidity seems to have decreased in the past two years.2% 7.34% 0.550 3.765 January 2007 State Bank of India 5 . As of January 12. Now the government is rectifying the above error by transferring RBI’s holding to itself.948 4.9% 59.78% stake as on September 06. Table 2: Liquidity of SBI’s stock Volume of shares traded (’000) Shares turnover – Daily Averages (%) Value traded (Rs.6bn.832.
705. As at the end March 2006. total sanctions for 18 projects involving a total 6 State Bank of India January 2007 .05% of the bank’s commercial and institutional non-food credit and 12.75bn as of 31st March 2006.245.9mn.India Global Investment House Key Areas of Operations The business operations of SBI can be broadly classiﬁed into the key income generating areas such as National Banking.4. offering payments in addition to collections. Vendor ﬁnancing activity is being integrated with core banking through the internet platform. The functioning of some of the key divisions is enumerated below: Chart 3: Key Business Areas of the Bank State Bank of India Corporate Banking National Banking International Banking Treasury Operations Associates & Subsidiaries Source: SBI. telecom. Global Research a) Corporate Banking The corporate banking segment of the bank has total business of around Rs1. the disbursements and capitalization were zero and proﬁt amounted to Rs. airports. These SBUs are as follows: a.193bn. a. SBI has created various Strategic Business Units (SBU) in order to streamline its operations.3) Project Finance This SBU focuses on funding core projects like power.85% of the total domestic credit portfolio as on 31st March 2006. & Treasury operations.2) Leasing This SBU is not writing any leases since the past few years as unfavorable business climate and availability of alternative funding options at cheaper cost. roads. • • a.1) Corporate Accounts This SBU is important for the bank as its loan portfolio constituted about 27. Corporate Banking. Some of the products under corporate accounts SBU are as follows: • SBI-FAST.70bn as of 31st March 2006.Global Research .747. This is identiﬁed as a focus area to capture the credit portfolio of vendors. This product is now a comprehensive cash management solution. The foreign exchange business grew by around 55% y-o-y and reached Rs.1. special economic zones and others. ports. which is the cash management product offered by this SBU. International Banking. During FY06. This SBU now handles nearly 12% of the country’s visible trade and about 43% of bank’s forex business. had a turnover of Rs.
this SBU achieved total sanctions of Rs.146.41bn on cash basis to Asset Reconstruction Company (ARCIL). 4 sub-ofﬁces. It also handles non-infrastructure projects with certain ceilings on minimum project costs. During FY06. During FY06.8. to reach out to customers. During FY06 sanctions for 29 projects involving a total amount of Rs. a. This group consists of four business group which are enumerated below: b. earn on savings.95bn during the period ended March 2006. FIs and non-banking ﬁnance companies (NBFCs). The progress in enforcing the security interest has somewhat slowed down due to the requirement of withdrawing suits pending before the tribunal prior to action being initiated against the defaulting borrowers under the SARFAESI Act. this SBU entered into ﬁnancing of aviation sector actively by sanctioning loans for modernization of airports and acquisition of aircrafts. several new products were introduced. such as SBIMaxgain (minimize interest burden. The entire Off-Site MC business of all branches at 31 identiﬁed centres has been brought under the fold of MCG.177 branches. As a whole. the bank sold NPAs to the tune of Rs.55.238.464. The average processing time of credit proposals is about 15 days and quicker decision making on credit proposals of the Mid Corporate units has resulted in greater customer satisfaction. During FY06. even in the remotest corners of the country.140.42.80bn were in place as against 27 projects involving Rs.India Global Investment House amount of Rs.67bn.1) Personal Banking SBU This SBU is mainly responsible for retail business. both interest and fee based.12% in the previous year.63bn in the previous year.5) Stressed Assets Management During FY06. Out of the total branches. 104 satellite ofﬁces and 679 extension counters. a. showing a growth of Rs. 12 exchange bureaus.Global Research .51bn to Rs. the banking industry witnessed a major policy initiative by Reserve Bank of India with the opening up of sale / purchase of non performing assets to banks. As of March 2006.25. CINB. personal banking advances increased from Rs. 809 are specialized branches.610.9bn against security receipts and Rs.51.11. b) National Banking The national banking group has 14 administrative circles encompassing a vast network of 9.86bn (fund based and non fund based) including syndication amount of Rs. tailored to ﬁt the needs of speciﬁc customer segments. On the home loan front. These technology products coupled with quick Turn Around Time (TAT) have enabled Mid-Corporate Group to increase its business substantially and generate higher income. January 2007 State Bank of India 7 .11bn were in place as against 13 projects involving Rs.4) Mid Corporate Group The Mid Corporate Group (MCG) created in June 2004 has 7 MCG Regional Ofﬁces controlling 28 large branches with high concentration of Mid Corporate (MC) business.16bn at the rate of 31. 21 MCG branches have been migrated to core banking platform. Multi-City cheque facility and Core Power have been introduced in all these branches.47 % against a growth rate of 40.08bn in the previous year. New technology products like RTGS.
but against alternate securities. projects under Uptech are taken up in location speciﬁc and activity speciﬁc industry clusters. Focused on the SME sector.08% during the year. etc. revamped business processes and with its focus on market dynamics and customer preferences. SBI acquired 76% shareholding in Giro Commercial Bank Limited in Kenya and PT Indomonex Bank Ltd. and knitwear. The bank has also covered agro based industries like rice mills. b. The deposits of the SME SBU increased to Rs.16bn as at the end of March 06. farmers ﬁnanced through Agri Export Zones (AEZs) and value chain ﬁnancing.843.456. pumps. b. SME advances increased to Rs.52 % to Rs.81bn.042. The turnover increased by 10. As on November 2006. SBI Freedom Home Loans (Loans given without mortgage of property.890. c) International Banking SBI has a network of 73 overseas ofﬁces in 30 countries in all time zones and correspondent relationship with 520 international banks in 123 countries.53bn from Rs. auto components. SBI has installed ATMs at Male.26bn in FY05 to Rs.60bn of previous year recording a growth of 17.74bn in absolute terms and 65% which is considerably higher than last year’s growth. of India target of 30%. Debt restructuring mechanism for units in SME sector has been devised to ensure restructuring of debt of all eligible Small and Medium Enterprises (SMEs) on favourable terms.30bn of previous year. glass.4) Government Banking With the establishment of the government business unit and the consequent focus on marketing.1. instead). at Gaborone.70bn as at the end of March 2006 from Rs. in Indonesia. recording a growth of 39.305.205. 25 foreign ofﬁces were successfully switched over to Finacle software.3) Agricultural Banking This SBU is accountable for agricultural credit both traditional and new thrust areas like contract farming. Muscat and Colombo Ofﬁces. business turnover of this segment has grown substantially over the years.9.328. The criteria laid down by the Government of India for growth in SME advances is 20%. mainly due to implementation of well planned strategies. Increase in disbursements during FY06 was 83% against the Govt. agriculture loans contribute 11% of the total loan book. Agricultural advances grew from a level of Rs. 8 State Bank of India January 2007 . In recent years.90bn during FY06. achieved commendable business growth. b. Bank’s business turnover from the government business segment during 2004-05 was Rs. SBI Tribal Plus Home Loans.17.06 %. The bank is keen to implement core banking solution to its international branches also. SBI NRI-Home Loans.773. So far the bank has taken 28 projects for modernisation under the Project Uptech covering industries like foundry. and concentrating on various players in the value chain. The initiative was implemented by focusing on speciﬁc industry segments.India Global Investment House at no extra cost).8. During FY06. The bank incorporated a company SBI Botswana Ltd.Global Research . The auto loans portfolio has shown a growth of Rs.2) Small & Medium Enterprises The SME Business Unit implemented comprehensive strategies. sago and starch and horticulture activities like Apple Orchards and grape farming under the scheme.
the Group. Mutual Funds.7. Reorganisation of the treasury processes at domestic and global levels is also being undertaken to leverage on the operational synergy between business units and network.Global Research . In recent years.68bn. Credit Card. the treasury operation of the bank has become more active amidst rising interest rate scenario.061 branches including 4.2) Non-Banking Subsidiaries/Joint Ventures i) SBI Life: SBI Life is the third largest private insure with the market share of 10. e. In H1FY07 gross premium was Rs. The bank diversiﬁed its operations more actively into alternative assets classes with a view to diversify the portfolio and build alternative revenue streams in order to offset the losses in ﬁxed income portfolio.India Global Investment House d) Treasury The bank manages an integrated treasury covering both domestic and foreign exchange markets. Single window delivery system has been introduced in all associate banks. In addition to banking. Merchant Banking. project advisory and structured ﬁnance. Security trading and primary dealership in the Money Market. Factoring. e) Associates & Subsidiaries The State Bank Group with a network of 14. providing anytime-anywhere banking to its customers to facilitate a bouquet of innovative customer offerings. The reorganization seeks to enhance the efﬁciencies in use of manpower resources and increase maneuverability of banks operations in the markets both domestic as well as international. SBI’s seven associate banks are the ﬁrst amongst the public sector banks in India to get fully networked through CBS.21% among the private players and number one in terms of number of lives insured amongst private players (no. robust credit growth and liquidity constraints. sales January 2007 State Bank of India 9 . through its various subsidiaries.755 branches of its seven Associate Banks dominates the banking industry in India. of lives insured and policies is 25mn). e. ii) SBI Capital Markets Limited (SBICAP) SBI Caps forged ahead in issue management. provides a whole range of ﬁnancial services which includes Life Insurance.1) Associates Banks: SBI has seven associate banks namely • State Bank of Indore • State Bank of Travancore • State Bank of Bikaner and Jaipur • State Bank of Mysore • State Bank of Patiala • State Bank of Hyderabad • State Bank of Saurashtra All associate banks have migrated to Core Banking (CBS) platform.
89% among all primary dealers. SBI Caps booked gross income amounting to Rs.India Global Investment House and distribution.Global Research .24. (SBICSPL) SBICSPL is ranked 2nd in industry with cards in force over 3mn as on September 06.. f) Human Resources The bank had total staff strength of 198. v) SBI Funds Management (P) Ltd. and one of the projects handled by the company has been selected as the Asia Paciﬁc Infrastructure deal of the year for FY06.1.01% of the company’s paid up capital.6mn. 29.2mn in the last year. SBICAP Securities Ltd. SBI had launched VRS scheme for its employees in FY01 in which it has reduced it staff by approximately 5. 2006.39bn which amounted to a market share of 12. During FY06.186. In addition.481. SBICAPS Ventures Limited.000 and estimates natural retirement of another 5. On the international front. (SBIFMPL) SBI Mutual Fund is the mutual funds arm of the bank. SBI Caps has promoted four wholly owned subsidiaries viz.774 on the 31st March.2mn in FY06 as against Rs. SBIFMPL reported a total inﬂow of Rs.51% are ofﬁcers.5.285.27bn while pre-tax proﬁt was Rs.75bn in the previous year.79bn in FY06 as against Rs. while PAT of the company was at Rs.4mn.46%.84% and the Asian Development Bank holds 4. 10 State Bank of India January 2007 .1.49bn. 2006.67bn in the various schemes during the year. for undertaking stock broking activities.69% as on March 31. For the year ended 31st March. while other nationalized banks hold 22. the expertise of SBI Caps in the infrastructure and project advisory has received international acclaim.558.000 employees in next 4-5 year. for carrying on the Financial Services Authority (FSA) regulated activities. the company has been placed 11th globally in the Mandated Project Advisor league tables by Thompson’s. Total secondary market turnover of the company was Rs. To capitalize on the emerging opportunities. 2006.19% clerical staff and the remaining 25. 45. The company reported a net proﬁt of Rs.132. iii) SBI DFHI LTD SBI group holds 67. The total assets under management are Rs.881. 2006.4mn as at the end of March. Ltd. All India ﬁnancial institutions and private sector banks hold 5.30% were sub-staff. SBICAP Trustee Company Limited for undertaking venture capital business and SBI CAP (UK) LTD. the company has earned a PAT of Rs.906. iv) SBI Cards & Payments Services Pvt. the aggregate revenue generated by the SBICSPL was Rs. Of this.
New thrust areas… Going forward. and manage risk better.India Global Investment House Strategy and New Developments Though a public sector bank. technology enabled customer-centric. Together. The bank continues to expand its global footprints with the number of foreign ofﬁces having increased to 70 in 2005-06 from 54 in 2004-05. it has been moving swiftly to implement real time on-line banking.5bn. Following on from its successful acquisition of Indian Ocean International Bank in Mauritius. meeting best global practices and standards in banking and service delivery. The bank has formed a new department to draw up a blueprint for these cutting-edge segments in ﬁnancial sector services Private equity. After having computerized all its branches. On the private equity business. Despite intense competition and pressure on spreads it has maintained and improved its NIM.Global Research . but it could be in a range of Rs1bn-1. The bank has maintained its record of proﬁtability. With the new initiative. SBI has begun ﬁrming up 15 new business initiatives with substantial proﬁt potential. Major innovations and initiatives are in the arena of technology. payroll cards & other cards. it has set in motion a series of steps to transform itself into a modern. U. In tandem with the country’s growing trade and business with China. the bank is acquiring a majority stake in Giro Commercial Bank in Kenya and PT Bank IndoMonex in Indonesia. service delivery channels and human resource to efﬁciently serve bank customers across the globe. SBI is determined to capture its lost market share. The bank is also proceeding apace on international acquisitions. the bank identiﬁes new thrust areas to sustain its growth momentum. and Canada. The bank maintains its drive on the technology front to enhance customer service. Sri Lanka. increase productivity. Growing international presence…. the bank not earmarked any amount. merchant acquisitions and gold banking are a few areas SBI is looking at for developing its proﬁle as a modern 21st century bank. its representative ofﬁce in Shanghai was upgraded to a full branch. waking up to intense competition in the domestic and international ﬁnancial sectors.) pension. which are paying more for deposits as a way of encouraging investors to save. this lending rate increase is due to the rising cost of funds for banks. cards business (gift cards. As a part of its strategy to stay ahead of the competition. SBI had increased its benchmark lending rates by 50 basis points to 11. banking products and processes. During the year FY06. • • January 2007 State Bank of India 11 . while adjusting to the changing circumstances and interest rate environment. contributing a steadily growing share to the overall proﬁts of the bank. The foreign branches are on core banking. SBI opened representative ofﬁces in Angola and Turkey and additional branches were opened in Bangladesh.K. and these include: • Finally.5 percent. point of sale. general insurance. world-class banking organization. foreign ofﬁces and subsidiaries brought in a net proﬁt of US$80 million.
It will also be allowed to issue bonus shares. As a group SBI has 64% of it business and around 89mn accounts under CBS.50bn. enhancing trade development between New Delhi and Beijing. SBI's Shanghai branch provides investment consultancy and acquisition ﬁnancing. The voting rights of preference shareholders will be capped at 10 percent.India Global Investment House • State Bank of India has applied for permission for banking operations in China. which it could not do under the existing act. The bank's paid-up capital was Rs. The bill seeks to allow SBI to raise funds through preference shares or private placements.Global Research . SBI group has around 8. The SBI Shanghai branch will also increase investment in China. Indian banks have been raising capital to comply with Basel II prudential norms and meet strong demand for loans in a fast growing economy. would enable Chinese corporations to open their accounts with India's largest banking network. if approved. • • • 12 State Bank of India January 2007 . and remittances directly to India. which. as well as foreign currency services for overseas companies.26bn as of Sep 06. As per the new SBI Act the bank can raise funds from the market and lower the central bank's holding to 51 percent.710 branches of SBI. after changes are made in the law to dilute the central bank's stake.500 branches under CBS platform with 3. The bill also seeks to increase SBI's authorised capital to Rs. SBI was expected to offer remittance services in China and might open new branches in South China and Beijing by 2008. The bank could raise fresh equity in the ﬁscal year beginning in April 2007.5. The new bill proposes to amend the SBI Act to allow the minimum central bank holding in the bank to be lowered to 51 percent from 55 percent.
Public sector banks dominate the Indian banking system though their market share is dwindling… The public sector banks (PSBs) account for a major share of all the banking indicators like assets. The heartening factor was that the credit offtake was more broad-based with all the sectors of the economy going for credit. banks increased their dependence to non-deposit resources. retail loan boom. The strong credit offtake was primarily responsible for the improved net interest income of many banks.India Global Investment House Indian Banking Sector Indian banking sector can be divided mainly into four broad categories namely public sector banks. However. many banks shored up their capital by way of new issues. Table 3: No. the private sector banks. This is despite the fact that. deposits. HDFC Bank and UTI Bank etc. and infrastructure funding with low incremental defaults. advances etc. and foreign banks. The banking sector has been driven by vigorous credit growth during recent years. The credit demand was not entirely ﬁnanced by the customer deposits as the growth of deposits slowed down marginally in 2005-06. old private sector banks. Housing and retail segments were joined by the demand for credit from agriculture and industry segment as well. we will focus on the ﬁrst four categories. especially new private banks like ICICI Bank. Robust macroeconomic performance continued to strengthen the ﬁnancial performance of scheduled commercial banks (SCBs) in recent years and this trend continued in 2005-06 as well. the strong credit demand was able to more than offset the impact of sharp decline in non-interest income. With the sharp increase in risk-weighted assets. The other categories of banks include co-operative banks and regional rural banks. In fact. Scheduled Commercial Banks . Non-Scheduled Commercial Banks Source: Reserve Bank of India Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 297 292 290 289 222 293 288 286 285 218 196 196 196 196 133 4 4 4 4 4 Indian banking driven by structural factors… The Indian banking sector in recent years is driven mainly by structural factors such as corporate capex cycle. new private sector banks. number of banks curtailed their fresh investment in Government securities to ﬁnance the credit demand. Asset quality of SCBs has been improving since the past three years as reﬂected in the decline in gross non-performing assets in absolute terms.Global Research . are giving tough competition to their Robust macroeconomic performance strengthen the ﬁnancial performance of commercial banks in recent years January 2007 State Bank of India 13 . RBI has asked banks to switch over to the 90-day delinquency norm with effect from March 2004. In order to meet the increased demand for credit. Since these banks don’t form a substantial chunk of the banking system. of banks in India Number of Commercial Banks (a+b) a. In addition to this. despite hardening of sovereign yields. Proﬁtability of public sector and new private sector banks improved.of which: Regional Rural Banks b. There were as many as 222 scheduled commercial banks in India as at the end of Mar 2006.
Global Research . In keeping with the Basel II requirements.971.7% in the previous year.337. The share of private banks was 20. rose by a healthy 37.128. accounted for 48.37 2. The share of foreign banks.32 519. as a group.8% in the previous year.5% of the total assets in 2005-06 as compared to 51.201.38 Fixed Assets 79.847.719. regional rural banks and private banks aggregate deposits were 5. capital and reserves and surplus showed vigorous growth.863.65 655.96 Other Assets 231. According to latest Reserve Bank of India (RBI) ﬁgures.29 80.971.2% in 2004-05.85 234. bn) Year FY03 FY04 FY05 Sources of Funds Capital 46.34 245.63 74.1%). as against 4.65 277.83 688.036. loans and advances witnessed strong growth while investments surged by 30.08 81.77 154.68 1.337.61 475.066. Public sector banks which comprise State Bank of India group and other nationalised banks are continuously losing their market share in bank deposits since the opening up of the banking sector to their private counterparts.552.4%.16 4. respectively.534.65 276.4%.5% as against 6. The data indicates that SBI group’s market share in deposits dipped to 23.036. in the previous year.16 4.18 Balances with Banks & money at Call 124.847.426.89 91.22 420. The share of nationalised banks. down from 49.04 4.87 3.07 Investments 1.3% and 19.2% (20.5% in FY06 as against 47.11 4.6% in 2005-06.93 Other Liabilities & Provisions 376.39 261.7% during 2005-06 as compared to 23.1%.65 Business growth of all scheduled commercial banks… During the last ﬁnancial year ( up to March 31. 2006) incremental gross bank credit increased by 36% as compared to a growth of 31. Loans and advances constituted 53.81 201.com FY06 92. for which the data is available.49 311.4% in FY06 from 24.90 Application of funds Cash & Balances with RBI 164. respectively.7% of the total liabilities of the private sector banks in 200506. However.90 Source: Capitaline. foreign banks recorded a marginal dip in their share in bank credit to 6. The share of the SBI group was stable at 23.89 525.9% (net of conversion) in the same period of the 14 State Bank of India January 2007 .44 794.352. The increased capital also underscores the growing importance of non-deposit resources of SCBs.70 369.India Global Investment House government owned peers.45% and 18. As regards loans extended by commercial banks. Robust growth in assets… The asset size of 43 private sector banks. On the back of robust economic growth and industrial recovery.11 4.16 Deposits 2.8% in FY06.46 Total Liabilities 3.59 323.44 3.79 2.3% during the previous year.1%. Deposits grew by 41. On the liabilities side.746. private banks and foreign banks have gained during the year. The share of nationalised banks was 47.44 6.667.95 Reserves Total 219.30 531.40 Borrowings 566.23 Advances 1. Table 4: Consolidated Balance Sheet of 43 Private Sector Banks (Rs.66 1. there has been no signiﬁcant change in the market share of various bank groups.90 1.580. total deposits constitute around 69.45 47.2% in the previous year.4% in the previous year.76 2.72 6.08 Total Assets 3.
480.7 3.004. The target population is small.521.046.391. January 2007 State Bank of India 15 .3 14.4% Source: Monthly economy report Mar’06 (Ministry of Finance) Retail loan/GDP 48.0% 1. The year on year growth rate of non food credit was 30.Global Research .8 201.275.546.9 14.India Global Investment House previous year. and low leverage of individual balance sheets.8% as compared with 27.8% during the same period last year. Growing urbanization. Table 6: Share of retail loan as percentage of GDP (%) Name of the Country Singapore Malaysia Taiwan Hong Kong India Source: Federation of Indian Chambers of Commerce and Industry % Variations 11.3% 22.9% (net of conversion) on the corresponding date of last year.7 7.9 20.5 17. The year on year growth of gross bank credit as on 31st March 2006 was 29.0 60. Aggregate deposit Demand Deposit Time Deposit 3.472. With savings rate at 28% (of which 90% is from households).0% 13.750bn in Mar 03 to Rs 3464bn by Mar 08.5 7. Bank Credit Food Credit Non Food Credit 2.6% 37.8 7. we expect retail loan boom to continue with low incremental defaults. Non food credit up to FY06 registered a growth of 37.964.9% as against 26.2 7. Table 5: Business growth of Indian banking sector Outstanding as on (Rs.876.0% 19.6% -2.7 417.593.0 2.0 52.8% -1.002.0 8. rising disposable income of the middle-income group comprising 23% of the population is leading to a shift in consumption patterns and fuelling retail loan boom.0 52. Investments in Govt.bn) Items 18-Mar-05 31-Mar-06 1.1 17. We expect the retail credit market to grow from Rs.2 10.7% on the corresponding date of last year. and other approved securities Government Securities Other approved securities Retail loan boom… Retail credit to GDP continues to remain low compared to other regional emerging markets.8% 40.189.8 36.7 14.3% as compared to 32.3 411.9 228. however growing at a fast pace.404.0 India’s population is young with over 50% of the population under the age of 25 and 80% under the age 45.
However. Overall.7 7 4 .5%) in the corresponding period of the previous year. banks may not be able to offer better returns on deposits. 16 State Bank of India January 2007 .2 8 1 . Banks have raised deposit rates by over 50 basis points over the last six months. Banks faced a resource crunch in FY06 and FY05.2.India Global Investment House Chart 4: Average Income in US$ 250 200 150 100 50 0 1996 V e r y R ic h ( $ 1 9 5 0 0 ) A s p ir a n t ( $ 9 8 0 ) 1 6 . Hence. many private banks have started offering higher returns on nine-month to one-year term deposits. private and foreign banks could still come out with more attractive rates as they are not governed by this.8%) in the current ﬁscal year up to October 13. which have exhibited close correlation with stock market activity in the recent period.49bn (20. Besides from August 1.153.09bn (6.1. 2006 as compared with an increase of Rs.1 3 3 . it is useful to note that the incremental non-food credit-deposit ratio during the current year so far. On an annual basis.8% a year ago.6 2007 C lim b e r s ( $ 2 3 0 0 ) 7 5 .982. has declined to 77.5 33 44 5 4 .29bn (18. In recent weeks. Aggregate deposit growth during 2006-07 has to be viewed in the context of several favourable developments during the period.852. namely.4 4 6 .Global Research .44bn (8. This has forced many banks to go on overdrive to woo depositors by offering attractive rates on term deposits.6%) a year ago.7% from 105.2 2002 C o n s u m in g C la s s ( $ 4 5 0 0 ) D e s titu te s ( $ 4 4 0 ) 2 4 . with the government asking PSBs to roll back lending rate hikes. with loans growing more than deposits in absolute terms.5 5 .2 Source: NCAER Surge in bank deposits… Aggregate deposits of SCBs increased by Rs. PSBs have raised rates on term deposits offering returns comparable to small savings schemes.938. the growth in aggregate deposits at Rs. demand deposits. have moderated since the equity market turbulence in mid-May and June.4 2 .1 2 0 .7%) was higher than that of Rs. On the other hand.5 1 . However. the relative attractiveness of bank deposits vis-à-vis small savings – owing to higher interest rates on banking deposits and extension of tax incentives for longer term deposits (ﬁve years and above) – as well as active deposit mobilization strategies mounted by banks to fund the expansion in credit. for private banks and foreign banks deposit mobilization is not much a constraint. ‘06 bank deposits for over ﬁve years are eligible for tax beneﬁts.1 3 2 .3.1. improvement in corporates’ internally generated resources placed with the banking system.
3 2.8 2.2 *NII annualised to ensure comparability between quarters. Foreign banks were followed by new private sector banks with the operating expenses to total assets ratio of 2. Table 7: Scheduled Commercial Banks – Operating Exp/Total Assets ( Per cent) 2005-06 Item/ Bank Group Q1 Q2 Q3 Operating Expenses/ Total Assets* Scheduled Commercial Banks 2.India Global Investment House Private sector banks having higher operating cost… Foreign banks in India have one of the highest operating expenses to total assets ratio in India at 2.3 New Private Sector Banks 2.2 2. Table 8: Scheduled Commercial Banks .3 2.8 2. The new formats include specialised ofﬁces where banks extend low-ticket credit and raise low cost deposits.2 2. We believe that net interest income growth will be robust due to growth in volumes of credit-offtake. we do not expect any rise in operating cost to income ratio. January 2007 State Bank of India 17 .4 Old Private Sector Banks 2.1 3.7% during the ﬁrst quarter of FY07. a better regulatory environment and lower risk charge for default on loans.7 1.6 2. However.7 Q3 3.1 2. on the back of the base effect of higher staff costs in FY05 (staff cost account for over 65-70% of the total operating expenses).4 Public Sector Banks 2.Global Research .3 3.4 2.6 2005-06 Q4 2.5 * Operating expenses annualised to ensure comparability between quarters.7 3.6 4.0 2.7 Operating costs are not likely to take a breather for private sector banks as the banks are aggressively increasing their delivery channels and investing heavily in technology. Source: RBI Q4 1.3 3. despite the rapid increase in infrastructure as we believe that the income is also expected to go up sharply going forward.5 3. We believe that net interest margins had come under pressure due to competition.0 2.0 2.6%.0 3.0 3.8 2.1 3.0 2006-07 Q1 2.8 Q2 2.3 2.1 Foreign Banks 2.2 3.5 1.2 2.3 2. NIM improved for efficient players… Scheduled commercial banks in India have a net interest margin of around 3% during the ﬁrst quarter of FY07.Net Interest Income/Total Assets (Per cent) Item/ Bank Group Net Interest Income/Total Assets* Scheduled Commercial Banks Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks Source: RBI Q1 3.6 2.8 2.4 2. The reason behind the higher operating expenses for the foreign banks and new private sector banks is their heavy investment in technology as compared to the government owned banks.4 2.7 1. High volume growth is likely on the back of higher operating costs.1 2.6 2.8 2006-07 Q1 3.3 2.1 1.2 3. Foreign banks in India have one of the highest net interest margins to total assets ratio of 4% followed by public sector banks and old private sector banks. The operating cost for public sector banks took a breather in FY06.
866 entities for recovering Rs101.8 0.8 2.88% during 2005-06 were almost the same as during 2004-05 (0. The study further says that banks can apply the act only to one-third of the gross outstanding NPAs. The SARFAESI Act. on the other hand. empowered the banks to sidestep the courts and dispose of the defaulters’ properties given as securities to recover the dues after giving due notice. Robust economic activity and better recovery climate have facilitated reduction in non-performing assets in recent years.5% and 1.1 1. 3% and 1%. Total expenditure (as % to total assets).9 2005-06 Q3 Q4 1. proﬁts after tax.Global Research .Net Proﬁt/Total Assets (Per cent) Item/ Bank Group Net Proﬁt/Total Assets* Scheduled Commercial Banks Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks Source: RBI Q1 0. respectively.4 *Net proﬁt annualised to ensure comparability between quarters. This augurs well for the NPA problem of the banks.3%.6 1. Asset quality of scheduled commercial banks improved further during the year.7 1. at 0. at endMarch 2006.0 0. Though the act sent the defaulters scurrying in panic. While these recoveries may seem insigniﬁcant in comparison to the overall level of NPAs in the banking system.9 0. brought into force in mid-2002. it will have a healthy deterrent action on fresh slippage also. more importantly.8 1. Agricultural loans and loans below Rs1. scheduled urban co-operative banks and Non Banking Finance Companies also recorded an improvement in their asset quality during 2005-06. As many as 45 banks (out of the total of 85 banks) recorded an increase in the proﬁts ratio during the year. However. as % to total assets.0 0. in view of lower provisions.5 2006-07 Q1 0. Improving asset quality…. Table 9: Scheduled Commercial Banks .9 0.21% of their assets in 2004-05 to 8.7 0. Public sector banks have sent notices to 28. of their net advances at the end of March 2006.1 1.3 0. Only ﬁve banks had net NPAs in excess of ﬁve per cent of their net advances. its progress has been plagued by one hurdle or the other. during 2005-06 were lower than the previous year. According to a CRISIL study.0 1. earnings before provisions and taxes. with net NPA ratios reaching 1. with gross and net NPA ratios reaching historical low levels of 3.India Global Investment House Net profit remains flat… Total income of SCBs declined from 8.1mn are outside its purview. Financial institutions. 18 State Bank of India January 2007 .0 0.3%.6 0.7 Q2 1.8 0. as both interest and non-interest income moderated during the year. was unchanged from the previous year.7 0.89%). respectively.6 1.0 1. about 36% of the outstanding NPAs are outside the jurisdiction of the act on account of the exemptions provided by it. As a result. as % to total assets.. There is now a growing consensus among the bankers and borrowers alike that more stringent debt recovery measures will follow in the future.03% in 2005-06.7bn under the act. the substantial amounts recovered in such a short time from long pending sticky loans is indeed commendable.9 0.
8 2.4 1. especially in the context of implementation of Basel January 2007 State Bank of India 19 .7 1.8 4. full address. Sufficient capital to sustain growth … At end-March 2006.7 Credit Information Bureau .0 2.4 1.7 Q4 3.7 0. Tier I) ratio of the banks increased from 8. Around 90% of the lenders in the ﬁnancial system are now using the database of Cibil.1 0. scheduled commercial banks were well placed in respect of capital requirements. real estate and capital market exposure and application of capital charge for market risk for investments held under the available for sale category from March 2006. corporate.e.6 0. catering to individual borrowers and has amassed 55 million records so far.India Global Investment House Table 10: Scheduled Commercial Banks .6 1.9 1. Although the overall CRAR declined.5 5. reﬂected higher growth in the advances portfolio of banks as compared to investments in government securities.0 1.Gross NPAs to Gross Advances (Per cent) Item/ Bank Group Gross NPAs to Gross Advances Scheduled Commercial Banks Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks Net NPAs to Net Advances Scheduled Commercial Banks Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks Source: RBI Q1 5. Recently.9 4.8 2006-07 Q1 3.3% at end-March 2006 reﬂecting increased access by banks to primary capital market as also transfer of investment ﬂuctuation reserve from Tier II to Tier I capital.Global Research .5 3..9 2.4 1.2 3. among other information.4 1.5 2. increase in risk weights for personal loans. Higher growth in risk weighted assets.5 1.1 2.6 0.9 0.7 1.3 1. the core capital ( i. names of directors or partners. notwithstanding a modest decline in the aggregated capital ratios during the year.5 6.1 3.5 1.2 5.3 1. in turn.1 5.1 4. small and medium enterprises (SMEs) and other types of business entities earlier this month.5 1.7 4. The increase in Tier I ratio would provide more headroom to banks in raising capital funds through Tier II. collating and disseminating credit information pertaining to both commercial and consumer borrowers. to a closed user group of Members.4 3.8 2.9 1.8 2. The decline in CRAR during 2005-06 could be attributed to the higher rate of increase in total risk weighted assets vis-à-vis the expansion in capital during the year.1 1.2 1.6 2. registration number.8 0..0 0. credit facilities availed. amount outstanding against each facility. With the launch of Credit Information Bureau (India) Limited (CIBIL) in 2000 asset quality of banks is likely to improve further.4 2. CIBIL has launched its commercial bureau for catering to non-individuals viz. CIBIL had launched its consumer bureau.9 2005-06 Q2 Q3 4. CIBIL’s aim is to fulﬁll the need of credit granting institutions for comprehensive credit information by collecting.. The database compiled by CIBIL would contain the credit history of borrowers including details such as the name of the company or partnership.7 5.4% cent at end-March 2005 to 9.
6 13.1 12. of which one is under moratorium. Bank of India is the only entity among large lenders to cross the 18% target at 19.1 13.7 12. Nominal bank credit growth has accelerated from the bottom of 10.8 12. But despite a huge growth potential.6 12.3 Agriculture lending faltering despite growth potential… Agriculture lending has emerged as one of the fastest growing loan segments for commercial banks.3% of the stipulated 18% during FY06. 20 State Bank of India January 2007 .0 12.5% currently. Market major SBI has managed to reach just 14. 2008. 2009.0 2006-07 Q1 12. while Union Bank of India and Bank of Baroda recorded 16% and 14. This will provide banks some more time to put in place appropriate systems so as to ensure full compliance of Basel II. all other scheduled commercial banks will have to adhere to these guidelines pertaining to risk provisioning by March 31.8 12. most banks are still below the level of 18% of total loans stipulated by the government.6%.India Global Investment House II norms from March 2007. agriculture loan.3 Q4 12. While foreign banks in India and Indian banks operating abroad are to meet Basel-II norms by March 31.4 12.0 13.8%.7% in September 2003 to 30.8 13. As per the priority sector norms in India. Credit cycle likely to sustain … Low real rates and a sharp rise in bank credit have been at the heart of India’s growth story over the past three years.4 13.3%.Global Research .4 2005-06 Q2 Q3 12. Among other major commercial banks.7 12.2 11. Only three scheduled commercial banks. small scale industry loans and home loans upto Rs1mn. could not meet the prescribed CRAR requirements at end March 2006. Of this banks have to lend 18% to agriculture.4 12.2 12. banks have to lend 40% of net bank credit to priority sector which includes among other.6 12. RBI pushed back the deadline for implementation of Basel – II norms. Though it is still lower as compared to East Asia and Paciﬁc nations with the credit to GDP ratio of around 105%.2 13.0 11. The government wants the banks to double their agri-loan portfolio over the next three years. Credit outstanding has increased by almost US$190bn to US$380bn over the past three years. The current credit cycle is the longest credit cycle India has witnessed since the early 1970s.2 12.1 11.CRAR (Per cent) Item/ Bank Group Scheduled Commercial Banks Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks Source: RBI Q1 12. ICICI Bank has managed to achieve a target of 16. Basel-II norms – some breather for banks In its mid-term review of Annual Policy for FY’07. Table 11: Scheduled Commercial Banks . respectively. Commercial credit to GDP has increased to 47% as at end-June 2006 from 35% in January 2003.
12. Credit to GDP ratio much lower… The credit to GDP ratio was slightly above 40% by end-March 2006.9 China 163.2. vehicles (33.Key Sovereign Indicators (%) Country Broad Money/GDP Turkey 49. RBI has initiated number of restraining measures which include increasing risk weightage for commercial real estate-related loans to 150% from 100%. engineering (23.1% in March 2006 to 13.0%. capital market-related loans. the credit to GDP ratio in India is much lower than several Credit to GDP ratio in India was slightly above 40 % by end-March 2006 January 2007 State Bank of India 21 . Even though there is sharp rise in real interest rates.4%.0 82. The year-on-year growth in bank credit to agriculture was of the order of 37% by June 2006.8% in June 2005 to 27.5%) as on October 13. increasing their share in total bank credit from 1.4% to 2.0%).6% by June 2006.8%. in June 2006.3%.05bn (30. Loans to commercial real estate almost doubled during the period. 2006 on top of an increase of Rs.7%). Over the past three years. Shares of bank credit to infrastructure.0%).761.4 US 64. The year-on-year growth in credit to industry was of the order of 26. respectively.8% in June 2006.03bn (31. 11. metals (38.1% and 10.0%).3% in June 2006.1% and 11.8%) a year ago. retail lending rose by 47% on a year-on-year basis with growth in housing loans being 54. However. retail and agriculture.7 The most important point here is the rising interest rates. Provisional information available from select SCBs for June 2006 indicates that within the services sector which currently absorbs about 49% of non-food bank credit.8%) and construction (59. RBI has also increased the mandatory standard loan provisioning in speciﬁc sectors (personal loans. only 44% of the incremental credit disbursed ﬂowed to the industrial and agriculture sectors.1 Source: Fitch Sovereign data comparator Private Credit/GDP 25. in June 2005 to 20.7 123.5 47.Global Research . however. the share of retail credit in total bank credit increased marginally from 26.4% in June 2006. As a result. The share of agriculture in total bank credit rose marginally from 13. its share in total bank credit fell from 43. In a bid to slow this aggressive credit growth in sectors other than industry and agriculture. Substantial increases were observed in credit ﬂow to industries like infrastructure (28. which will ensure easy ﬂow of credit to the corporate sector. gems and jewellery (46. On a year-on-year basis.8%. non-food credit of SCBs exhibited a growth of Rs.3.5 India 69.979.4 27. With the banks increasing its deposits rates there will be a relatively higher time deposit growth in the banking system.2% in June 2005 to 37.3%).3%). food processing (25.8 Russia 35. credit growth would not be impacted due to higher demand from every sector like corporate. RBI has been concerned about the strong credit growth in the retail and real estate sectors. textiles (32.1%.3%.India Global Investment House Table 12: Growth Markets. despite the steady increase over the years. respectively. residential loans greater than Rs2mn and commercial real estate loans) to 1% from 0. metals and textile industries in total credit to industry increased from 19.2 Brazil 27. for housing to 75% from 50% and for consumer loans (unsecured credit and credit cards) to 125% from 100%.1 32.2%).
Foreign banks wants the government to relax regulations such as priority sector lending. The extent of impairment could be detected either through the market prices or through the current rating of the security. RBI suggests that banks may consider the market price in conjunction with the age of the security. The review is expected to examine issues such as dilution of stake and permitting mergers/acquisitions of private sector banks in India by a foreign bank. foreign banks may establish a presence by setting up a wholly-owned subsidiary or conversion of existing branches into a wholly-owned subsidiary. This is the reason why a number of foreign banks are eager to set up shop in India. A large number of foreign banks are queuing up to enter India despite a regulatory iron curtain that is restricting entry. In case of unrated securities. branch licensing. it is around 150% in China and in Thailand it’s just above 90%. units of open-ended mutual fund schemes and securities with a put option cannot be classiﬁed as HTM reserves.Global Research . ownership rules and statutory liquidity requirements. The proposed regulation requires banks to set aside funds for a fall in the market value of their equity investments even if there is no intent to sell them. The government has set up a roadmap for the foreign banks to tread on. Banks typically classify these investments under the held-to-maturity (HTM) category. The roadmap has two phases. single borrower limits etc. interest of foreign institutional investors and the country’s changing image. As per revised draft guidelines on classiﬁcation and valuation of investments. banks should transfer scripts from the held-for-trade to the available-for-sale (AFS) category either at the acquisition cost or the book value or market value on the date of transfer.India Global Investment House advanced and emerging market economies. For example. The second phase is to commence in April ’09 after consultation with all stakeholders in the banking sector. India offers tremendous potential in the long-term as its credit to GDP ratio is likely to improve further. huge market. These guidelines are expected to come into force from April 1. Thus. The book value of the individual 22 State Bank of India January 2007 . Banks investment valuation set to change… Banks’ method of evaluating their investments in their listed subsidiaries or in joint venture companies may now undergo a drastic change. Foreign banks have targeted India for a variety of reasons. Foreign banks eager to enter Indian market… India offers tremendous opportunities for banks in India. During the ﬁrst phase between March ’05 and March ’09. investments in perpetual preference shares. This is regardless of the fact that most foreign banks seems to be unhappy with the Reserve Bank of India’s roadmap for liberalisation of entry norms for foreign banks proposed in February ’05. Besides. This is evident from the levels of investment and expansion plans for the country. Union Bank of Switzerland (UBS) and Australia-based Macquarie Bank are some of the banks which are interested in India. whichever is the least. ’07. However. the government is moving cautiously in opening up the market to foreign banks. The Reserve Bank of India (RBI) released a set of revised draft guidelines which suggest that banks should evaluate these investments based on the extent of impairment in these companies. They are impressed by the pace of reforms. This suggests that ﬁnancial deepening is still low in India as compared to the other emerging countries and is expected to improve further with the development of the ﬁnancial sector.
73 896.68 7. Comparison in asset base indicates that the private sector banks are in better position than the public sector banks in terms of asset growth.06 42.57 932. if it has sold or reclassiﬁed.44 497.06 19.82 4.33 8.56 1.84 90.7* 223. The guidelines also aim at providing banks’ boards room to ﬁx the internal limits for holdings in the HTM category. These proposed norms prevent a bank from classifying any security as HTM.79% Bank of India 949.07 14. In January 2007 State Bank of India 23 . Performance of listed banks… Strong growth in Indian economy assisted banks to increase their asset base.85 Since the past few years.513. these guidelines would impact the bank’s operating proﬁt.31 31. Through these proposed set of guidelines.00% Public Sector Banks State Bank of India 4. However. which makes it mandatory for all banks to maintain at least 25% of their net demand and time liabilities as reserves under the SLR portfolio.49 8.74 18.39% Bank of Baroda 94.265.22 62.21% IDBI Ltd 814.11 NA 310.0 135.39 19.4%.41% Source: Respective banks and Global Research *9M FY07 H1 FY07 2.122. ICICI Bank was the leader in customer deposit growth as its deposit grew by 65.4% followed by HDFC Bank (53.18 101.11% Yes Bank 1.75 56.28 4.0* 649.India Global Investment House securities would undergo a change with a corresponding debit to the proﬁt and loss account.59 2.938.7%). In the private banking space ICICI Bank.3 886. Private sector banks reported excellent performance as compared to their government owned peers.676. some of the public sector banks are giving tough competition to their private sector peers. It states that only securities with ﬁxed or determinable payments having a ﬁxed maturity that a bank intends to hold and has the ability to hold till the term of maturity may be classiﬁed under the HTM category. State Bank of India which has the largest asset base in the country recorded a modest growth of 7.30% Karur Vysya Bank 78.89 49. customer deposits of banks recorded strong growth.23 405.92% UTI Bank 377.bn) Bank Mar-05 Mar-06 % Change Private Sector Banks ICICI Bank 1.Global Research . Canara Bank and Bank of Baroda lead the sector. In the private banking space.82 4. However.76% J&K Bank 244.823.85% Corporation Bank 339. This indirectly implies that RBI’s stipulation.69 1.25 168.66 113.3 735.35 462. Earlier.78 1. HDFC Bank & UTI Bank showed strong growth in their asset base whereas in the public sector bank Allahabad Bank.16 225.94% HDFC Bank 514. RBI has attempted to give a clear deﬁnition of securities which are eligible for classiﬁcation under the HTM bucket.938. more than 5 % of the HTM before maturity at the end of the previous ﬁnancial year.232.598.5%) and Kotak Bank (52.42% Kotak Bank 65.52 11. Table 13: Assets of Some of the Listed Commercial Banks (Rs. banks were asked to provide for depreciation and hence this change was reﬂected in the bank’s net proﬁt ﬁgures.23 264.24% Federal Bank 151.
21 939.07^ Federal Bank 134.3% followed by IDBI Bank with 82.17% 1.38% 1894.7%.83 65.76 20.032.55% 81.48 3.96 53.49* UTI Bank 317.15 Bank of Baroda 81.82 Bank of India 788.1 338.33 328.33 93. SBI. which is the largest bank in India. * December 06 .66 15.3%. whose net proﬁt declined by 82.02 260 72.94 IDBI Ltd 151. NA Not available Federal Bank reported a sharp jump of 150% in its earnings at the end of FY06 over FY05.46 3.5%.49% 509.45 234. Other major banks which reported strong growth in net proﬁts include and IDBI (45%).650.92 12.bn) Bank Mar-05 Mar-06 % Change H1 FY07 Private Sector Banks ICICI Bank 998.88 Kotak Bank 43. In the public sector domain Bank of India reported a growth of 106.32 19.Global Research .11 26.48% 667.72 75.50% NA Karur Vysya Bank 66.926.7%). Table 14: Customer Deposits of Some of the Listed Commercial Banks (Rs.71% NA Yes Bank 6.12 401.800.99 HDFC Bank 363.76 151. followed by Bank of Maharashtra (-71%) and Vijaya Bank (-66.543 557.63 29. Laggards included IndusInd Bank. reported a growth of just 3.30 Public Sector Banks State Bank of India 3.72% NA Source: Banks and Global Research Note: ^ June 06.20* J&K Bank 216.53 Corporation Bank 272.670.76 13.16% 309.16% 1.19 1.66 52.54% 3.India Global Investment House the public sector banking space.91% 43.00 65.076.3% growth. IDBI Bank reported stellar performance as its deposits grew by 72% followed by Corporation Bank with growth rate of 20. 24 State Bank of India January 2007 .73% 182.85 8.
Bank of Baroda having gross NPAs of 2.750.98 Kotak Bank 848.60 22.700.00 Most of the banks have CAR more than required 9% but considering the excellent credit growth.32 11. IDBI Bank has one of the highest CAR in the industry with 14.80 4.269.072.96% during the same period.053.40 106.31 39.10 149.850. Most of the banks have provided substantial amount so that average net NPA of Indian banking industry is around 1-2.444.60 4.90 82.182.52 IDBI Ltd 3. January 2007 State Bank of India 25 .98 J&K Bank 1.50 28.60 10.400.9 2.80 44.70 26.045.06 383.712.34%).830.900.68 Karur Vysya Bank 1.70 2.66% followed by ICICI Bank (14. Table 16: Capital Adequacy Ratio of some of the banks as of September 2006 Banks ICICI Bank Coperation Bank Bank of India Bank of Baroda UTI Bank IDBI Ltd Source: CMIE CAR (%) 14.400.40* 1.28 Corporation Bank 4.50 7.34 13. NA Not available H1 FY07 13.83 14.49 Federal Bank 900. * December 06 .655.60 8.66 Asset quality of Indian banks has improved signiﬁcantly in the last 2-3 years. banks have to expand their capital base.44% at the end of H1FY07 followed by Bank of India. Bank of baroda has the largest gross NPAs of around 3.471.40 53.67 HDFC Bank 6.00 383.608.25%.768.00 7.2% of advances.9 1.40 587.021.60 4.00 NA Public Sector Banks State Bank of India 43.Global Research .8^ 1.40 1.464.20 44.353.707.979.37 Bank of Baroda 6.768.18 Bank of India 3.93 11.520.014.252.50 2.28 Yes Bank NA 2. UtiBank has the best asset quality as its gross NPAs stood at just 1.00* 4.60 19.80 30.00 2.00 25.60 5.70 1.052.55 Source: Banks and Global Research Note: ^ June 06.India Global Investment House Table 15: Net Proﬁt of Some of the Listed Commercial Banks (Rs.mn) Bank Mar-05 Mar-06 % Change Private Sector Banks ICICI Bank 20.210.066. In the select banking universe as indicated below.00 4.345.096.40 8.83 UTI Bank 3.150.85 12.
players like Canara Bank.16 22.bn) 37.32 2. This step by RBI preserved to curb overheating of the economy. ICICI Bank.96 3.79 0. Standard Chartered Bank. In case of UWB. 2007. 2006. • Ganesh Bank of Kurundwad (on the border of Maharashtra and Karnataka) will be merged with Federal Bank. Citibank. and a consortium of HDFC and the State Industrial Investment Corporation of Maharashtra had shown their interest in the bank.20 2.16 2. RBI put to following banks under moratorium. 26 State Bank of India January 2007 . This move could also force banks to reduce their credit exposure.45 1.25% effective from the fortnight beginning December 23.19 24. some of these are regional having strong network in their region.31 Consolidation is slowly in process There are many small and medium size banks across India.bn) 15.07 0.44 2.20 2.88 4.72 13.90 0.India Global Investment House Table 17: Non Performing Assets of some of the banks (September 2006) Gross NPA % of Advances Banks ICICI Bank Corporation Bank Bank of India Bank of Baroda UTI Bank IDBI Ltd Source: CMIE Net NPA % of Advances (Rs. RBI is very actively tracking performance of these banks and taking strict action if the performance of regional banks is poor.89 5.34 7.29 ( Rs.67 7.48 1. The second 25-basis point hike will be effective from the fortnight beginning January 6.359 0.Global Research . This would absorb Rs135bn from the system and this could put a pressure on the cost of funds as money supply would be constrained. in ﬁrst step.01 6.44 1. Interest rates may also be impacted as a result. a Kerala-based private bank. In 2006. United Western Bank will be merged with IDBI • Many banks are coming forward to take over these banks to extend their network and mobilize more low cost fund. This hike to be undertaken in two stages. check inﬂationary expectations and suck out excess liquidity from the system.68 1. RBI hikes CRR by 50bps to control overheating… RBI has recently announced a 50 basis points hike in cash reserve ratio. This shows that there is atleast a desire of consolidation amongst the industry players. the CRR will be raised from the present 5% to 5.
which have been enumerated below: Analysis of Income Statement Net interest income growing steadily… As mentioned earlier.36bn. Interest income of the bank grew at a CAGR of 6.357.156.834 201. During 2005-06. 2006. During the last ﬁve years. We have analysed the performance of SBI based on various key parameters.870 304.5% 2.386 298. The bank has wide distribution network with more then 14.593 Net Interest Income 83.1% to Rs.3% on a year-on-year basis.742 184. CAGR 6.560 207. interest expense rose by a modest CAGR of 2.6bn.605 324.4% and stood at Rs4.600 plus ATMs. Currently the bank is focusing on its network and trying to mobilize more low cost deposits.812 99. Mn) Interest Income 261.4% over the previous year to Rs. SBI has reported a steady performance since the past few years. This resulted in a CAGR of 13. which helped contain the cost of funds.280 357.6% due to restructuring of its liabilities.5% during the period 2001-2006 and stood at Rs.826 90. We believe that the bank would sustain this ratio and can marginally improve on it mainly because of its resource mobilization power and cost control measures.5% in 2002 to 56. January 2007 State Bank of India 27 .101 310.095 192.288 211. low cost deposits grew by 19.6% 13. which helped the bank in containing its cost of funds. The overall result was that the net interest income of the bank jumped by 12.3% in 2006. In addition.949 Interest Expense 177. SBI’s total balance sheet size grew at a CAGR of 9.95bn while interest expense rose by 9. Another positive factor is that the interest expense to interest income ratio declined consistently from 69. Table 18: Historical Net Interest Income of the Bank FY01 FY02 FY03 FY04 FY05 FY06 (Rs. The bank continued this growth momentum in 2006 to register an impressive year-on-year improvement in ﬁnancial performance.446 156.000 branches and 5. The increase in net interest income was primarily driven by the strong balance sheet growth and increase in the share of demand deposits in total deposits during the year.357.3% Another major contributor to the growth of net interest income was the rapid growth in low cost deposits. the redemption of India Millenium Deposit and Resurgent India Bonds has also helped the bank to lower its cost of funds.3% during the last ﬁve years.Global Research . During 2005-06.3% on a y-o-y basis. 2006 interest income of the bank grew by 10. During the same period.3% in net interest income. For the ﬁnancial year ended Mar 31.FY06 SBI is the largest commercial bank in India.1% to Rs.863 139.938bn at the end of FY06. SBI as a group handles more than one fourth business of the Indian banking industry. Global Research Analysis Net Interest income of the bank grew at a CAGR of 13.201.India Global Investment House Financial Performance .776 111.95bn at the end of Mar 31.356 Source: SBI. demand deposits grew by 19.
92% to the total non-interest income of the bank.076 4.8% to Rs.544 76.0% in 2006 to total non-interest income.946 30. 000 350 .96 in the previous year). the bank has made total provisions of Rs186. (Rs Mn) 250 . there has been a signiﬁcant decline in proﬁts from trading in investments to Rs.717 18.189 9.735 Exchange transactions 3. though it has always been volatile.Global Research . Table 19: Trend in Non-Interest Income Rs. The non interest income of the bank increased at a CAGR of 13.030 Other Income 6. Other income contributed 14% in 2002 and 25. Global Research Analysis Non-interest income .4% 5. Global Research Analysis FY05 FY06 CAGR 35.7% Income from investments also formed a part of the non-interest income of the bank in the past. During 2005-06.7% 17.753 5. exchange & brokerage 26. 000 50 .887 13.987 13. Forex income contributed 12.199 73. For the year ended Mar 06.8% 12.774 31.India Global Investment House Chart 5: Interest Income and Interest Expense trends for the Bank 400 .165.207 Sale of investments 3. The key contributor to strong growth in noninterest income has been other income.282 9.3bn (against Rs. In 2006 non-interest income (excluding sale of investment) made further headway as it improved by a stupendous 27.96bn. 000 Non interest income of the bank increased at a CAGR of 13.052 5.036 4. The fees and commission income.962 8. it has been the non-interest income that gave a ﬁllip to the earnings of the bank.324 28.7% over the last ﬁve years. 000 200 .55bn. 000 150 .830 41.75bn in the previous year. recorded a growth of 12. which includes loan-loss provisions.636 5.447 39.5.9bn compared to Rs.125 Source: SBI. 000 300 .506 25.165 29.745 64. we believe that the bank with its domestic expansion plan will give much needed thrust to its efforts to enhance fees and commission income.516 16.152 Total non-interest income 38. Provision for loan assets… The bank continues to provide aggressively against loan assets and has also created a ﬂoating provision. which constituted around 54% of the total non interest income. Income from foreign exchange transactions also recorded impressive gain of 80.548 25.7% in 2006 and stood at Rs.39. Mn FY01 FY02 FY03 FY04 Commission.0% 71.9bn. Pursuant to the change in provisioning requirement 28 State Bank of India January 2007 .872 11. 000 100 .7% over the last ﬁve years.73. Going forward.17. 000 F Y01 FY02 F Y03 FY04 F Y05 F Y06 In t eres t In co m e I n t e r e s t E xp e n s e Source: SBI.419 3.26% to reach Rs. provisions for standard assets and ﬂoating provisions.9.leading from the front… Historically.
316 46.73% 17.251 7. Global Research Analysis In FY06.7% Other operating expense 18.478 92.) RoAA (%) RoAE (%) Source: SBI.38.477 69. Manpower productivity has also risen over the years as proﬁt per employee increased steadily from Rs. a rise of just 2.94% in FY04 to 0.117. Global Research Analysis Impressive Earnings Growth… Overall.83.25% to 0. The return on average assets declined from 0.7% in FY05 to 62.332 17.9mn.887 64.4% over FY2005.05bn towards standard assets as against Rs. Including this amount. Operating expenses grew at a CAGR of 7.1bn.27bn in 2004-05 and Rs.86% 19.2mn in FY05 to Rs. while the return on average January 2007 State Bank of India 29 . mn) EPS (Rs.019 4.993 24.4.Global Research . the bank reported a strong performance in the past ﬁve years with its net proﬁtability of the bank recording a CAGR of impressive 22.8% Total Operating Expenses 82. FY02 24. operating expenses rose by 16. some of the banks proﬁtability indicators like Return on Average Assets (RoAA) and Return on Average Equity (RoAE) seem to have deteriorated.13bn.5 in FY2001 to Rs.2% in the last ﬁve years.116 51. Table 20: Break up of Operating Expenditures Particulars FY01 FY02 FY03 FY04 FY05 FY06 CAGR 01-06 Employee expenses 60.92% 17.522 7.2% during the last ﬁve years. he bank reported net proﬁt of Rs. Employee expenses.810 69.81.045 81.23.050 59.22mn in FY06.73 0.9 0. Operating expenses … Operating expenses of the bank grew in line with the growth in business.067 83.853 16. Mn Net Proﬁt (Rs.729 8.7% FY05 43.230 6.1% over FY2005. the total provision held on standard assets amounts to Rs.0% FY03 31. During the year there was decline in the operational efﬁciency as the cost to total operating income after provision improved from 60. the bank has made an additional provision during 2005-06.2% Source: SBI.2bn.3bn.92bn towards provision for depreciation on investments in India.937 6.India Global Investment House for standard assets from 0.654 20. The total operating expenses grew at a CAGR of 7.4% FY06 44.4% over the previous year and stood at Rs.4% as notiﬁed by RBI.250 4.44. which rose from Rs.44.0 0.15bn in 2004-05.92% in FY06.30.109 79.9.2 0.7 in FY06. Table 21: Proﬁtability Indicators Rs.453 100. For the year ended Mar-06.2% Depreciation on banks property 4.2% FY04 36.742 117.99% 19.0.79 0. The improved earnings have also led to the improvement in the earning per share of the bank. which always contributed substantial chunk of the total operating expenses.291 12. This is primarily due to sharp rise in assets for expansion purpose.9% in FY06.0% Despite the improved earnings over the years.528 56.983 7. including amortisation of premium on Held to Maturity category as against Rs.988 72. The year 2006 also turned out to be proﬁtable for the bank with the bank reporting a net proﬁt of Rs. grew by 17.6% in FY2006 to Rs.146 28.1bn. During the same period the business per employee has been also increased to Rs29.0.94% 19. a rise of 2.073 81.4%.1. The bank has provided Rs.
000 FY01 Credit book of the bank grew at a CAGR of 18.000 20. 3. Analysis of Balance Sheet Assets growing strongly… The asset proﬁle of SBI is spread over a wide array of asset categories similar to the other commercial banks in India. Spread of the bank has also increased from 1. 30 State Bank of India January 2007 .7% 2.2% over the last 5 years.4% over FY2005. investments portfolio accounted for 32.4% in the last ﬁve years and stood at Rs.000 100. The net interest margin (NIM) of the bank has gone up from as low as 2.000 40.3% in the last ﬁve years.000 120.000 140. Investments portfolio also accounted for the major portion of the bank’s assets.0% in FY06. Global Research Analysis NIM Higher Dividend… The bank has recommended a higher dividend rate of 140% on equity shares. Chart 6: Rising NII & NIM 180.000 60. Due to the bank’s nature of operations.9% in FY01 to 3. In 2006. Net Interest Income (NII) of the bank has witnessed a CAGR of 13. compared to the 125% dividend declared for the previous year.4% in FY06.5% 3. This has enabled the bank to minimise its risk exposure.5% FY02 FY03 FY04 FY05 FY06 NIM (%) NII (Rs mn) NII Source: SBI.3% 3.1% 2.000 80.7% in FY02 to 3% in FY06.87% in 2006. Maintained efficiency… SBI has displayed a steady performance in the last few years in scaling up its efﬁciency levels. Net NPL to net loans stood at 1.9% of the total assets. loan portfolio accounted for a substantial portion of the bank’s assets and it formed 52.7% in FY04 to 17. yet achieve the expected returns.7bn at the end of FY06 representing an increase of 7.938.4.000 160.98% of the total assets in FY06. With the increase in earnings in future. The total assets of the bank grew at a CAGR of 9. the bank is expected to distribute handsome dividends to shareholders.Global Research .9% 2.India Global Investment House equity down from 19.
The asset growth in FY06 was mainly fuelled by 29. The SME advances increased to Rs.2.India Global Investment House Chart 7: Break up of Assets 0.53bn in FY06 from Rs.50bn in FY05 to Rs.91% 52. as a January 2007 State Bank of India 31 .238.86bn (fund based and non fund based) including syndication amount of Rs.140.610.81bn in FY06 registering a growth of 36.337. showing a growth of Rs.30bn in the previous year. 205. as a result of which net NPLs.95bn during the period ended March 2006 while mid corporate credit has increased by 42% to Rs194. The aggregate advances (excluding food and inter-bank advances) of the national banking group which includes personal .98% Cash and Balances with RBI. net NPAs have now come down to 1.3bn.44% during the year.16bn at the rate of 31. Project ﬁnance achieved total sanctions of Rs. The criteria laid down by the government for growth in SME advances is 20%.616.3% growth in gross loans and advances to customers and banks and stood at Rs.95% in March 2002 to 3. The bank has provided for about 53% of its non-performing loans in 2006. With continuous cleaning of the balance sheet.51bn in the previous year to Rs. NPL is declining though provisions have also declined … Asset quality of SBI has been improving since the past few years despite sharp rise in asset size.26bn in March 05 to Rs. banks and money at short and call notice Net Investment Loanes & Advances Net Fixed Assets Other Assets Source: SBI. The bank continued to improve its asset quality. recording a growth of 39.11% growth.02% 32. SME.72 % under agriculture and 31. Personal banking advances increased from Rs.88% in March 2006.146.1.4bn.2% over the last ﬁve years.49% growth in personal segment.06 %.980.Global Research .56% 4.464.90bn and the y-o-y growth rate works out to 49%.47 % against a growth rate of 40. This is on account of an impressive growth of 39.87%.305. agricultural and government banking increased from Rs.456.99.328.16bn as at the end of March 06. The ratio of gross NPAs to gross loans have come down from 11.12% in the previous year.67bn in FY06. Agricultural advances grew from a level of Rs. Global Research Due to stiff competition prevailing in the industry total credit book of the bank grew at a CAGR of 18. Housing loans portfolio registered an increase of 28. Growth during the year was Rs.53% 9.
971bn in FY05 to Rs. The bank has been able to expand its deposit base by rapid expansion in semi-urban and rural areas of the country and by way of introducing number of innovative products.83% 3. Thought the law allows RBI to lower the banks SLR requirements below exciting 25%. In case of economic slowdown. the bank further de-risked the investment portfolio to manage interest rate risk through a combination of measures such as shifting securities amounting to Rs. A cut in SLR rate at this point would infuse future liquidity into the system.0% 57% Investment Portfolio… The investment portfolio constituted around 32.625bn in FY06.10% 2.54% from Rs. declined substantially from 2. coverage has declined from 57% in 2004 to 53% in 2006. Funding Structure… Historically. around 5-6% of the balance sheet was funded by shareholders equity with the rest coming from customers and inter-bank deposits. SBI’s asset quality is likely to take a hit as the bank has grown its asset coupled with an increase in gross NPLs. use of derivatives. Global Research (*as per Annual Report) Mar-05 6.297. The bank is looking forward to clean its balance sheet and write off some of its old problem loans. The overall domestic investment portfolio has. During the same period.1. however. shrunk from Rs.88bn from AFS to HTM.64% 3. reducing the modiﬁed duration. During the year.1. as concerns over excess liquidity in the system and claiming inﬂation persist.56bn in 2005 to Rs103. The government is planning to bring an ordinance to empower the RBI to ﬁx the level of banks SLR.1.8% 53% 7.96% 1.91% of the total asset size of the bank at the end of FY06. This coupled with low coverage ratio.India Global Investment House percentage of net customer assets. is likely to affect bottom line in case of an economic slowdown. The bank’s investments declined by 17.88% 1. etc. Gross NPL in absolute terms has declined from Rs 124.1.954bn in FY05 to Rs. Table 22: Asset Quality of SBI Mar-04 Gross NPLs/Gross Loans Net NPLs/Net Loans Loan Loss Reserves/Gross Loans Loan Loss Reserves/NPLs* Source: SBI.Global Research . A major portion of the investment was in the domestic market in government and other approved securities.0% 57% Mar-06 3. 32 State Bank of India January 2007 .45% 4.76bn in 2006. we believe that the central bank unlikely to take such steps.87% as on 31st March 2006.65% as on 31st March 2005 to 1.593bn in FY06 as the bank redeemed some of its investment to divert funds to boost loans and advances portfolio.
9%.00% 20.00% FY03 FY04 FY05 Term Depos its FY06 CASA (%) Savings Depos it Source: SBI.000 0 FY02 Demand Deposits 50. the redemption of India Millennium Deposit and RBI bonds has also helped the bank to lower the cost of deposits.bn) 1. we opine that the low cost deposits would continue to be on current levels to maintain the cost of funds.9% 59. Global Research On the back of robust low cost deposit growth. grew by 18.00% 40. Total deposits grew at a CAGR of 9.00% 10.55% in FY06. would play a critical role to maintain Net Interest Margins (NIMs) at current levels in time to come. with low cost deposits registering a CAGR of over 15. This.7% Deposits Borrowings Subordinated Debt Other Libilities and Provisions Total Shareholders Equity 11.500.3% 6. Global Research Growing low cost deposits lead to lower cost of funds… The deposit growth for SBI has been satisfactory. As mentioned earlier.3.00% 30. cost of funds for SBI has seen a substantial reduction. Out of this.8%.48% in FY02 to over 47. with outstanding deposits at Rs. January 2007 State Bank of India 33 .0% Source: SBI. savings bank deposits.3% over the previous year. the share of the bank’s deposits in total resources was at 75.4% over the period 2002-06 to reach Rs3.800bn.000 1.India Global Investment House Chart 8: Break up of liabilities 8.4% during the same period. especially the term deposit category.500. Chart 9: Movement of Deposit Growth 2.000 500.00% 0. As at the end of March 2006.000.9% 6.000.800bn.Global Research .2% 7. an important part of low cost deposits. according to us.000 (Rs.000 2. Contribution of low cost deposit to total deposit during the period too has moved up from just 36. reﬂecting a growth of 19. With growing reach through larger branch and ATM network.
a. Global Research CAR at the end of FY06 was at 11. for an aggregate amount of Rs.7bn and is a long-term unsecured non-convertible debt which qualiﬁes as Tier II risk based capital. Capital Adequacy Ratio (CAR) of SBI has been above the mandatory levels of 9%.35% 13.88% Source: SBI.8% of the same.993bn. we believe that a large capital infusion is mandated in order to sustain the growth going forward. while Tier II Capital was at 2. Capital Adequacy Ratio remains on lower side… Despite a subsequent strong growth in assets.1mn each for cash at par at a ﬁxed rate of 7. Subordinated debt outstanding at the end of FY06 stood at Rs.83bn.05. the bank issued by way of private placement. borrowings of the bank increased by 59. especially in view of robust economic upsurge.52% Capital Adequacy Ratio 12.India Global Investment House Borrowings and subordinated debt… Borrowing from RBI and other banks and ﬁnancial institutions constituted around 9.21% 4.45% 11. unsecured.19% 4.86. subordinated bonds of the face value of Rs.45% p.50% 13.69% 5.36% Tier – II 4. payable annually. Of this.2015.34% 8. The face value of bonds outstanding as at 31st March 2006 is Rs.52%. But the same is on the lower side when compared to other peers in the industry.04% 9. Table 23: CAR movements (%) Particulars FY01 FY02 FY03 FY04 FY05 FY06 Tier .7% to Rs. the capital infusion would be very essential to smoothly progress to Basel II guidelines.I 8.88%.41% 2.5% of the total liabilities and shareholders equity of the bank while subordinated debt comprised around 1. 34 State Bank of India January 2007 . Also.79% 13. These bonds are redeemable on 05.83bn to augment its Tier II capital.32.32.13% 4.36%. This has been mainly due to very robust credit book growth registered by the bank. Considering the bank’s continued healthy credit growth. Tier I capital amounted to 9.88%. above the benchmark requirement of 9% prescribed by the Reserve Bank of India.22% 8.53% 12. the Capital Adequacy Ratio (CAR) at the end of the year was at 11.81% 8.58% 9.1. During the year 2005-2006. In FY06.Global Research ..
48% compared to H1FY06.61bn in H1FY06 and Rs. Net Interest Margin (NIM) of the bank for the half year ended Sep 06 was at 3. mainly due to pan-India network of 9.83bn as against Rs.93bn during 2QFY07.26bn.544.77.38bn. The bank’s domestic advances (excl.58% from Rs.51bn as at the end of September 2005 i.4bn (including deferred tax of Rs. The bank’s domestic deposits growth has been excellent at Rs.16bn in H1FY07.32% compared to 2. would have been much lower but for the on-going payments to staff opting for early exit. January 2007 State Bank of India 35 . The net proﬁt for this half would have been higher but for two factors: presence of one time item of interest on income tax refund of Rs7.2.87bn in H1FY06 to Rs. Adjusting tax provision for H1FY06 based on tax provisions for full year FY05-06.27bn as against Rs. Provision made during 2QFY07 was only Rs. The bank has posted a net proﬁt of Rs19.78%. Net Interest Income (NII) is up by 8. The net proﬁt for H1FY06 was Rs.56%. helped by vast network of the bank and focus on salary / new accounts.81% in September 2005.13. The cost of deposits declined from 4.24%.48% as on September 2005 (excl.306 branches.43bn and FBT Rs190mn) in H1FY06. which increased by 5. The bank’s deposits grew by Rs381. interest income on advances went up by 37.888. Provision for taxes stood at Rs. The average yield on advances improved to 8. as against Rs. an increase of 316 bps.78.29. a growth of Rs. Staff cost. Due to the volume growth in advances and improvement in yield.Global Research .2.91bn as at the end of September 2005 recording a YoY growth of 24. Provision for depreciation in investment was Rs.e.009. Non-interest income (excluding treasury income) grew well by 19.87% over H1FY06.63bn (deferred tax Rs.India Global Investment House First Half Results Interest income on advances in H1FY07 has registered an impressive growth of 37.24.497.383.3.51% in September 2006 helped by improvement in CASA Ratio.23bn mainly on account of amortization of premium in HTM category. Gross advances grew to Rs. Total provisions made for this half year were at Rs.18% YoY.926.2.48% YoY. the net proﬁt for H1FY07 would be much higher than that for H1FY06.64% in September 2005 to 4.71.49bn adjusted for one-time item in H1FY06.42bn as at the end of September 2005 recording a growth of 10.73bn to Rs.2.77%.152. CASA ratio of the bank improved from 39. Operating expenses registered a moderate increase of 6.83bn for H1FY07.4.92% as on Mar 06 (adjusted for one time interest income) and thus core NIM has improved by 40 bps.3. food) grew by Rs172. NII as on H1FY07 is Rs.3. SBI’s domestic advances (excl.15bn as at the end of September 2006 from Rs.21.40bn as at the end of September 2006 from Rs.89bn equal to 21.23.97bn during H1FY06.33.26.03bn as at the end of September 2006 from Rs.64% as on September 2006.84bn made in H1FY05-06.12bn in H1FY06 and much higher tax provisions in H1FY07. despite less reliance on bulk corporate deposits.1. IMDs) to 42.76bn & FBT Rs 225mn) as against Rs.504.55% in September 2006 from 7. food) grew to Rs.24bn during 2QFY07. Excluding the impact of one-time items.15.
10bn at the end of September 2006.30bn and the total outstanding.73% as on September 2005. Chart 10: Break up of loan book 7% 10% 2% 25% 10% 11% 11% Mid Corporates PER AGL International Operations Source: SBI.02bn. Housing loans disbursed during H1FY07 are around Rs. Gross NPA and Net NPA ratio have declined from 5. the advances in personal segment grew (YoY) by Rs.345. Retail advances constitute 25. Housing loans constitute 52.10bn as at the end of September 2006 from Rs.71bn.306. As on 30th September 2006. The growth in retail advances is 26.75% of the bank’s gross domestic advances as at the end of September 2006 as against 24.53% of its retail advances as on September 2006. Tier – I capital adequacy ratio of the bank as on Sep 06 was 8. 36 State Bank of India January 2007 .05% over September 2005.57% and 1.India Global Investment House As on 30th September 2006.Global Research .136.237. The bank continues to perform well in housing ﬁnance.67% respectively as on 30th September 06.27% as on 30th September 05 to 3.11%.43bn to its capital during H1FY07 by way of upper Tier-II subordinated debt.08bn as at the end of September 2005 recording a growth of 29. The outstanding personal segment advances aggregated Rs658. Total Tier II bonds mobilization in last 11 months was Rs. housing advances grew (YoY) by Rs62. which helped the bank in improving its capital adequacy ratio.40bn to improve its Tier I ratio.48bn.102.26% and 2. as at the end of September 2006 was Rs.74%.91bn. Global Research 24% SIB Top Corporates Others Corporates Food The bank added Rs.106. The bank has the cushion to raise Tier I hybrid debt of over Rs. Agricultural advances grew to Rs.26bn.55. Disbursements during the half-year ended September 2006 were at Rs.
With 5. The bank’s credit card unit is doing well as it caters to diverse customers and contributes more to the bottomline of the bank. With the rise in interest rates. The bank is also expected to continue to strengthen its focus on project advisory services. credit growth is expected to slowdown as most banks have hiked their Prime Lending Rate (PLR). the major challenge remains to maintain NIM. However. SME advances too have grown signiﬁcantly and. The bank is expected to continue to achieve a higher return on its shareholders equity and diversify its business with more innovative products and services. January 2007 State Bank of India 37 .5% on deposit for the period of twenty months.Global Research . covering more than 65% of the total business of the bank.020 branches with more than 1.783 branches of associate banks being fully networked on core banking.169 branches.624 ATMs of SBI and more than 3. Disbursements to agriculture went up by a massive 83% during the year. healthcare and tourism. We believe that deposit mobilization is not a cause for concern for most of the banks. have so far been brought under core banking. being the single largest contributor to the growth in credit.500 ATMS of associate banks. perhaps more importantly. Retail advances in the personal segment kept up the tempo of growth and comprise almost a quarter of its advances. some of the public sector banks have aggressively priced their deposits to attract retail customers and are offering above 8. After having computerized all its branches. Focus on alternative delivery channels are also expected to further increase the banks efﬁciency. The bank is in the process of widening its reach both organically and in-organically in both domestic and international markets. The bank is a leading player in infrastructure ﬁnance and syndication of loans. and manage risk better. increase productivity. cost of funds for the banks would rise substantially for those banks which have hiked their deposit rates to garner low cost deposits. Going forward. For some of the public sector banks. in addition to all of the 4.000 corporate users. specialized credit cells for loan processing and greater customer orientation are paying dividend across the board. The bank maintains its drive on the technology front to enhance customer service. SBI’s changing business processes through initiatives such as strategic business units. In addition. the State Bank Group has the largest network of ATMs in the country. Internet banking is now provided at 4. their quality improved. The bank is expected to realize signiﬁcant operating efﬁciencies by leveraging its technology platforms as the bank grows both domestically and internationally. Over 4. it has been moving swiftly to implement real time on-line banking. Hike in PLR rate would result in a substantial portion of the loan book of the bank getting re-priced resulting in better yields for most of the banks. the bank is expected to invest more on cutting edge technology to support its growth initiatives.India Global Investment House Outlook and Future Prospects Indian banking sector has been showing a strong credit growth of over 30% dominated by non-food credit on a y-o-y basis. However. with housing ﬁnance constituting over one half of the its retail advances. curbs on branch expansion though temporary will affect the low cost deposit mobilization in the short term.07mn individual and 43. Other growth sectors for the bank are education. The mid-corporate group has been a major success.
Delay in technology upgradation could result in loss of market shares. Weakness/ Threats: The risks that could ensue to SBI in time to come are as under: • SBI is currently operating at a lowest CAR.India Global Investment House Strength/ Opportunities: The growth for SBI in the coming years is likely to be fueled by the following factors: • Continued effort to increase low cost deposit would ensure improvement in NIMs and hence earnings. Signiﬁcant thrust on growing retail book poses higher credit risk to the bank.Global Research . Contribution of retail credit to total bank credit stood at 26%. • • • • • 38 State Bank of India January 2007 . thereby impacting earnings growth. could impact retail growth of SBI and hence slowdown in earnings growth. Stiff competition. • Strong economic growth would generate higher demand for funds pursuant to higher corporate demand for credit on account of capacity expansion. Insufﬁcient capital may restrict the growth prospects of the bank going forward. Management indicated a likely pension shortfall on account of AS-15 to be close to Rs50bn. especially in the retail segment. • Growing retail & SMEs thrust would lead to higher business growth. Slow down in domestic economy would pose a concern over credit off-take.
618 2010 F Terminal Value 22. While valuing banks we have consistently been using the Dividend Discounting Method (DDM) in our earlier researches as we believe it is the most suitable method to value banks because of the nature of banking business. Table 24: DDM Valuation Amounts in Rs Mn Dividend Expected NPV of Dividends PV of Terminal Value Total Value No of shares outstanding (mn) Value Per Share (Rs) Source: SBI.706 346.736 12. Equity risk premium of 6% Beta of 1.929 399.473 14.923 14. 5.567 2009 F 19. In our calculations. Therefore. Global Research 2007 F 11.59%. 3. as per the yield on the 10-year bond issued by the Government.India Global Investment House Valuation and Recommendation SBI is the market leader in the Indian banking industry.105 524.429 526 759 2008 F 14. The cash ﬂow for the forecasted period and the terminal value is then discounted back at the discount rate. The bank has been a consistent performer since the past few years. The DDM model constructed by us is based on a 4-year forecast of dividends as cash ﬂows (FY2007-10) for SBI. In case of DDM the cash ﬂows for the investor includes potential dividends. 2. Growth rate of 9% for SBI since the bank has pan-India presence and holds tremendous growth potential as compared to most of its peers in the Indian banking space.Global Research .052 10. to provide the total net present value (NPV) of the bank.59% derived using Capital Asset Pricing Model (CAPM) Risk free rate of 7. our valuation of SBI is based on discounting the future stream of dividends. Cost of capital of 13. we have now included a comparative valuation method (Price to Book Value) which more accurately reﬂects the current market expectations about the stock. 1. However.0 for last 5 years of SBI. we have made the following assumptions in order to arrive at the equity value of SBI. 4.609 January 2007 State Bank of India 39 .
94x to 2. We believe that the comparative valuation for the banking sector is more appropriately reﬂected through the price to book value (P/BV) multiple.313 950 746 616 11.632 2. As the book value multiples vary with time and are dependent on several factors such as market sentiment and other qualitative factors.094 1. the peer group valuation is done by comparing the P/BV multiples enjoyed by other public banks in the sector.59% 13. Therefore.0% 9. 40 State Bank of India January 2007 .289 934 734 Cost of Capital 11.463 based on its estimated adjusted book value for FY2007.0% 785 647 550 480 426 Growth Rate 8. The book value multiples of a stock are a reﬂection of various factors such as the expected proﬁtability.59% 14.134 1. growth potential as perceived by the market.India Global Investment House Sensitivity Analysis A sensitivity analysis for different estimated long-run future growth rates and cost of capital is provided as below. predictability and sustainability of revenues. quality of earnings and the quality of management among others. Table 25: Sensitivity Analysis 7. As SBI is the largest player in the Indian banking industry it should command premium valuations as compared to its peers in the PSU banking space.65x.0% 5.337 772 967 636 759 542 626 473 534 10.59% Source: Global Research Peer Group Valuation The peer group valuation is performed to compare the intrinsic value of SBI arrived at using the DDM calculation. Since the major private banks trade at around 5x to 6x of their book.0% 984 1.0% 2.Global Research .1. it’s not reasonable to compare SBI with other smaller banks in the PSU segment.59% 12. The table provides estimated fair values for SBI shares based on a range of varying inputs. The shaded area at the center shows the most probable range of alternatives. We believe that. The peer group comparison uses Balance Sheet and P&L multiples of listed and comparable public banks which reﬂect the proﬁtability and growth potential of a stock. The adjusted P/BV multiple for the major public banks on the Bombay Stock Exchange based on the ﬁnancial results for the H1FY06 ranges from 0. SBI’s stock valuation comes to Rs. a multiple of 3x to SBI seems to be appropriate. As such the multiple for SBI should lie somewhere between PSUs and private banking universe.93x with the average multiple being at 1. we have provided 20% weightage to the book value multiple and 80% to the DDM value calculation.59% 15.
we have valued SBI’s share price at an intrinsic value of Rs 1.43 63 8.5x and 12.8 15 Ownership Value/Share 899.3 12 0.223.Global Research . The stock currently trades at around Rs.2 670.042. At the current market price the stock seems to be fairly priced.24 Based on our sum-of-parts valuation methodology.) As per DDM method As per P/B multiple Weighted Price Source: Global Research 759 1. going forward.1x of its earnings for FY07E and FY08E respectively and 3.3x and 2.06 86 20. SBI has seven associate banks and comprised a signiﬁcant portion of the book value.1.40 1.13 74 31. As the economy is on a roll and rising disposable income with the people. However. we recommend a Hold on the stock with a medium term perspective.30 66 1. We have valued SBI on a sumof-the-parts methodology to capture the true value of the associate banks and non-banking businesses.32 1. January 2007 State Bank of India 41 .10 60 1. The bank currently trades at 14. the current market price already captures the future growth potential of the stock.82 247. we believe that the bank is a proxy to Indian economic growth.463 900 Weightage 80% 20% Sum-of-the-parts methodology SBI has number of valuable banking and other subsidiaries. Hence.48 1.06 15 0. The bank holds tremendous growth potential.05 1.13 180 1.India Global Investment House Fair Value Per Share (Rs.209 per share. which implies that the value arrived at using the sum-of-the-parts valuation methodology is slightly lower than the current market price by 1. other businesses of the bank are growing signiﬁcantly faster than the core banking business and will make an increasing part of the market value.092.96x of its adjusted book value.209. Table 26: Sum of Part Valuation Multiple SBI (DDM valuation) Associate Banks Investment Banking Mutual Fund Insurance Primary dealers Credit cards Total Note: 1 year forward Source: Global Research Book Value PAT AUM (Bn) NBAP (Bn) Book Value PAT 190. Similarly.13%.
113 4.970) 1.047 (47.732 1.368 950.771 35.189 5.022 104.188 (72.765 1.344 119.334.Savings Bank Deposits .401 4.045 17.578 6.960) 4.415 75.307 41.979 2.849 101.124 (41.933 118.975 (30.878 306.875.625.019 158.738) 2.106 64.829 445.185.206 35.239 1.557.412.880 2.686.461 679.342 2.830 35.605.750.470 1.030 3.757 37.976.186.745 68.333.343.335 60.106 75.364 418.116 3.263 196.738 7.263 116.514 (16.529 223.767) 5.320 134.181 2.072 2.004 24.630 91.390) 1.358 (30.840.568) 1.307 40. banks and money at short and call notice Gross Investments -in Government Securities -in Other approved securities -in Shares -in Debentures and Bonds -in Subsidiaries and joint venture -in Others Less : Provisions for investment depreciation Net Investments Loans & Advances .698 (175.263 304.246.934 4 385.367 295.069) 1.474.912 346.508 5.592 3.677 1.782.645 354.560 109.544 4.582.425 3.147) 26.539 1.068.879) 26.001.181 2.968 134.724 567.427 6.466.218.451 179.155.Demand Deposits .394 1.880 3 240.345 12.712 1.934 3 276.106 58.398 128.808 4.475 566.991.670.617.297 31.India 42 5.829 5.907 4.840 Particulars (Rs mn.265 306.155 1.891 1.648 3.404 41.993.181 2.976 451.856.078.343 89.677 289.800.481 35.565) 1.598.091 584.209 35.051 35.231.872 35.251 97.982 686.752) 1.786 81.163 (63.922 246.617.674 52.281 191.153 (1.441 4.991.800.738 468.618.938.415 7.141 12.433 5.765 6.696 441.662.166.517) 27.977 183.313 208.802 1.721 4.959 1.934 4 308.576 (38.963 (81.701.957 1.528.428 3.796) 25.127.598.284 (145.473 13.123 949.313 4.064 97.908 795.556.695 1.874.518 427.750 17.024 (49.181 2.546 4.070.510 (14.187 502.596.891 (115.745 4.030 1.043 35.Net Fixed Assets Less : Depreciation Net Fixed Assets Other Assets Total Assets State Bank of India Liabilities Deposits .621 325.463 833.023.583.153 3.644 4.141 7.552 1.312 (19.430 5.033 98.938.779.696 5.663 393.221 2.059 5.251 94.106 82.412 86.579.251.431 1.131 1.600 1.568) 2.029 2.513 6.973 425.) Global Research .Gross Less : Provisions Loans & Advances .716 1.832.935 4.758 1.263 262.771 99.358.185.550 29.994) 1.724) 3.305 5.255 4.251.629.112 4.473.078.352 13.394.087 275.501 623.091 4.843 130.181 2.972 12.156 88.543) 24.989) 22.128 50.698 365.389.994) 26.907.932 6.789 (72.884 26.349 127.465 FY05 FY06 FY07 (E) FY08 (E) FY09 (E) Rs Mn FY10 (E) 435.445 (33.907.578 .106 70.007 38.436 108.241) 1.106 52.263 170.148 3 202.043.107 3.523 3.465 Assets Cash and Balances with RBI.970.Term Deposits Borrowings Subordinated Debt Other Liabilities and Provisions Total Liabilities Global Investment House January 2007 Owners Equity Equity Capital Statutory Reserve Share Premium Account Investment Fluctuation Reserve Revenue and Other Reserve Capital Reserve Foreign Currency Translation Reserve Balance in proﬁt & loss account Total Shareholders Equity Total Capital 5.840 3.191 (61.126 32.106 43.Balance Sheet State Bank of India FY04 435.802 6.044 4.910 1.474.569.749 515.188 37.263 227.863 1.616.946.263 140.364 5.290.010 (89.976 5.887.153 5.414.632) 3.666 1.801 (54.173 133.934 5 433.295 11.873.275.934 4 344.945 9.
707 64.370 160.491 141.431 33.207 30.901 3.169 96.165 5.337) 4.146 3.791 68.872 9.75) 3.229 388.501 3.570 15.454 FY09 (E) 538.) Interest Income Interest Expense Net Interest Income Global Research .863 31.596 4.045 (24.468 186.3 62.916 34.067 83.821) (6.447 44.251 69.171 43.256) (5.313 44.4 43.680 (35.935 4.Operating Statement FY04 304.986 27.9 44.776 22.214) (14.237 3.502 Particulars (Rs mn.506 73.215 275.742 65.549 28.549 81.785 181.548 18.328 29.052) (5.431 96.500) (2.824 235.728) (19.807 29.962 5.392 12.266 283.248 120.620) (11.392 55.146 100.9 44.327) (1.368) (6.0 72.293 Rs Mn FY10 (E) 622.045 81.007 100.246 19.446 FY06 357.125 36.789) (21.836 111.143 72.447 17.286 8.693 FY05 324.949 201.769 330.254 12.50) 3.522 24.40) 3.985 3.631 89.367 90.139 6.989 27.354 24.717 71.983 20.810 (9.747 39.823 215.477 6.887 1.105) (6.579) (10.2 53.601 61.680 35.153 76.908 26.836 39.768) 4.742 111.115 6.473) (5.074 7.392 80.326) 4.051 464.4 3.727 233.834 139.453 49.033.9 3.844 81.476 208.735 5.199 12.753 5.993 92.257 68.444 36.708) (937.023) (741.358 2.264 165.257 9.4 36.094 98.641 110.641 189.338) (7.3 4.986 22.855 4.062 24.288) (1.040 23.362 30.751 62.014 244.254 49.9 3.593 156.463 133.542 53.230 7.067 (29.216 65.605 192.824 4.280 184.291 28.136 148.806 111.478 38.103 163.0 State Bank of India Commision.427 5.181 7.465 8.143) (2.693 (41.062 69. exchange & brokerage Proﬁt on sale of investments Proﬁt on exchange transactions Other Income Total non-interest income Provision for NPAs Provision for investment depreciation Provision for others Total Operating Income Operating Expenses Employee expenses Depreciation on banks property Other operating expense Total Operating Expenses Operating Proﬁt PBT Provision for Income Tax Net Proﬁt P&L Appropriation Account Opening balance of retained earnings Net proﬁt Transfer to Statutory Reserve Proposed Dividend Transfer to General Revenue Tax on proposed dividend Cl balance of retained earnings Global Investment House 43 .653) 5.282 12.356 State Bank of India FY07 (E) FY08 (E) 396.216 22.367 (26.0 4.007 (30.435) (22.368) (1.India January 2007 3.257 23.958 39.048 49.2 4.763 3.251 20.356 72.995 44.810 69.729 117.030 9.736) (6.384 9.890 44.
201) 114.377) 452.807) (64.775) Global Investment House January 2007 Financing Proceeds from issue of subordinated debt Redeemable bonds Interest on bonds Payment of dividends Total Financiang 9.795) 38.985 (60.916 26.903) 62.058 (22.999) (71.988) (7.754) (6.752) (9.977) (135.671) 451.238) 51.449) 57.221 32.957) (4.779) 35.342) (6.905 (70.789 598.374 682.362) (7.951) (9.052) 1.770) 41.564) 60.666 17 (3.223) (18.)/Dec other liabilities & provisions Direct taxes paid Total Operating (a+b) Investing Fixed assets Investment in Subsidiaries /JVs Dividend recevied Total Investing (7.957) (5.573 (49.636) 311.362) (8.901 15.802 8.764) 18.957 (1.025) 9 (3.011) (6.922) (137.310) 22.778 (19.) in Investment Dec/(Inc.373 (59.132 State Bank of India Working Capital (b) Dec/(Inc.717 (855.613) 42.620 53.494 122.860) (3.052) (456.957 (3.864 (25.959 (4.775) (7.931 445.066) (854) 3.102 96.863 Net change in Cash Cash & Short-term funds at the beginning of the year Actual cash at end .257 7.530 484.043 435.695) (33.131 435.669 391.545 18 3.391 (115.357) (30.641) 475.551 (30.579) 4.600 13.416 777.932) 22.968 116.273 81.India 44 109.747 29.824 22.091) (238.480) 69.017) (27.059 (106.596 19.569 129.304 16.377 (41.713 6.563 (594.114 65.248 (25.802 418.914 111.105) (12. in borrowings (Dec)/Inc deposits (Inc.Cash ﬂow Statement 2004 2005 State Bank of India 2006 2007 (F) 2008 (F) 2009 (E) 2010 (E) Amounts in Rs Mn Global Research .431 9.613 (10.836 9.169) 445.465) 13.830 (17.736) (4.899) 2.027 68.050) 17.431 8.025) (8.782) (12.017) (869.322 (730.)/Dec in other assets (Inc.545 6 3.011 (11.054) 24.106 68.732 418.555) (2.488) 435.088) (14.807 (135.525 49.480 (22.387 (4.549 8.422) (16.754) (7.983 4.762) 10.709 393.289 (8.600 441.501 12.474) (8.954 10.706 (36.216) 627 (110.328 (169.194 (628.277 224.362 27.547) 66 (11.473) (10.291 40.085) 56.875 3.624) 17.216 7.975 (14.) in advances (Dec)/Inc.374 7.932 (4.986 133.384 3.371 441.431 451.561) 1.381) 46.447 29.131 Operating Operating (a) PBT Depreciation on ﬁxed assets Depreciation on investments/ Loans & other provisions Deferred Revenue Expenditure W/off (Proﬁt)/ Loss on sale of ﬁxed assets Payment/Provision for interest on Subordinary debt Dividend Received from subsidiaries Total Provisions & Amortisations for NPAs 173.405 125.522 23.503) (8.011 (66) 4.377) 38.548 (149.433 16 4.693) (42.908 154.620) (4.
8% 45.Non Performing Loans .3% .Net NPLs to Net Loans 3.94% .0% 2.1% 42.7% 2.2 44.Change in Fx Income 8.3% 56.91% 2.Book Value Per Share (Rs) 384.0% 526 84.806 79.Dividend Declared (%) 110% .1% 35.4 69.0% 10.6% 11. Income 3.Non Performing Loans .0% 14.0% 7.6% 9.8% 81.2% 3.0 487.2% 6.66% 124.8% 76.P/BV 1.84 2.0% 87.32% 46.00% 1.3% .93% 5.45 January 2007 State Bank of India 45 .949 66.32% 59.92% 17.3% 87.0% 21.0% 10.6% 55.Net (Rs mn) 54.95 0.4 355.Gross NPLs to Gross Loans 7.9 1223 12.672 .21% .73 140% 525.Change in Fees and Commission 4.55% .3% 19.34% 60.9% 13.62% Capital Adequacy .4% 40.P/E 8.40% 5.0 .67 0.9% 43.6% 83.76% 3.8% 21.3 210% 586.4% -17.88% 17.660 3. Income 46.Non-interest income/ Total Op.0% 16.8% 10.0% 526 138.85% 15.1 605.5% 22.Net Interest Income to Total Op.9% 13.3 432.98 State Bank of India FY06 FY07 (E) FY08 (E) FY09 (E) FY10 (E) 0.8% 94.4% 11.Loan Loss Reserve to Gross Loans 4.30 0.Deposits to Equity 15.5% -13.9% 22.Interest Expense to Avg Interest Bearing Liabilities 5.60% 15.7% 55.44% 127.4% 90.5% 24.4% 2.6% 10.1 370% 733.4% 30.Gross (Rs mn) 126.44 2.1 1.7% -66.8% 2.96% 3.3% 8.Interest Expense to Interest Income 63.9% 75. Income 18.46% 55.6% 98.Liquid assets to total Assets 10.6% 26.Investment Income Total Op.44% 144.3% 13.1% 21.21 * Market Price for FY07 onwards is price as of Jan 12.3% 49.Commissions/ Total Op.3% 2.5% 78.87 2.00% 5.Equity to Gross Loans 12.44% 113.85% 4. Income 14. to Total Op.94% 3.6% 81.3% 40.7% .89% 4.0% -1.8% .6% 14.69% 3.8% .Change in Investment Income 81.3% 22.9 1.9 .1% 42.2% 63.1% 6.9% 5. Book Value Per Share (Rs) 281.4% 99.Return on Average Assets 0.25% 73.Interest Income to Avg Interest Earning Assets 8.4% 44.48 2.2% 23.2% 62.43% 171.028 3.7% .7% 21.1% 5.7% -45.0% 90.661 59.0 968 11.40% 16.2% .7% 18.9% 1.6 72.0% 62.Net income/ revenues 12.4 1223 8.8% 1.09 3.6% 8.45% .32% 62.0% .Administrative Expense to Total Op.0% 30.5% 46.6% 37.5% -10.8% .3% 39.40% 62.4% 3.9% 68.7% 64.5% 20.6% 14.7% 0.7% .Change in Interest Income -2.3% 7.0% 39.1% 23.8% .2% .0% 77.99% Efﬁciency .Net Interest Margin 2.417 .0% 16.93% 2.6% 41.0% .32% 2.Net Spread 2.4% 100.5% .5% 13.20% 76.0% 2.961 66.40% 16.57 .3% .Shares in Issue (mn) 526 .Gross Loans to total Deposits 50.25% 63.5% 15.4% 22.4% 5.Adjst.6% RATIO’S USED FOR VALUATION .79 125% 457.00% 1.2% 5.98% 17.0% .76% 3.Equity to Total Assets 5.5% .Staff Expense to Total Op Income 45.8 1223 10.9% 44.99% 19.6% 17.7% 44.Loan loss provision to Gross NPL 50.4% 12.1 64.2% 17.5% 12.9% -11.95% 17.6% 0.Loans to Deposits 50.63% 5.Operating proﬁt / revenues .5% 31. Income 22.1% 10.67 2.709 51.33% 60.FX Income to Total Op.28% 62.9% 22.3% 21.0% .8 1223 14.8% .Loan Loss Reserve (Rs mn) 64.619 3.Net interest income/ Total Op.0% 14.Gross Loans to Assets 39.4% 16.50% 16.India Global Investment House Fact Sheet Rs Mn Particulars FY04 Proﬁtability .3% 20.EPS (Rs) 69.9 59. Income 22.5% 7.47% .0 1.6% 0.2% 11.0% 9.7% 17.1% 87.6% Operating Performance .7% 12.3% 8.064 46.7% Credit Quality . 2007 FY05 0.0% 2.Dividend payout ratio 15.96 0.7 .2% 59.7% 76.6% 76.65% .69% 3.3% 0.9% 61.84% 6.7 53.1% 11.87% 2.0% 2.7% .Return on Average Equity 19.386 3.91% 16.9% 12.0% 60.9% 27.489 62.0% 526 81.6% -42.8 657 8.5% 5.7% 41.0% 8.4 542.4% 11.5% 61.5% 8.0% 5.Market Price Year End (Rs)* 605 .758 49.0% 0.Change in Other Income -30.304 3.0% 2.P/ABV 4.0% .195 6.64% 5.0% .6% 10.Loans to Interest Earning Assets 41.7% Margins .1% 16.1% 57.9% 11.7% 15.4% 10.Net NPL’s to (Equity+Loan loss reserve) 23.0% 10.83% .9% 68.8% 11.628 51.4% -9.3% 23.9% 0.8% 10. Income 52.0% 10.3% 7.50% 1.5 2.5% 8.Cost to Average Total Assets 2.Global Research .Provisions to Total Op Income 32.Cost to Total Op Income 65.64% 20.8% .4% .7% 46.Fees & Comm.0% -58.5% Constitution of Total Income .01% 2.7 .3 1.8% 5.09% 2.0% 526 119.6% 2.71% 2.5% 526 83.4% -3.6 1.7 280% 655.054 78.6% 15.9% .2% 61.1% 1.4% 8.36% Liquidity .5% 36.1 420% 824.0% 16.9% 21.4% 57.4% 15.4% 75. Income 53.0% 116.0% 23.6% 15.Provisions to Average loans 2.557 53.7% 38.4% 17.4 .0% 16.9% 80.124 .3% 1.1 674.4% 1.195 51.Loan Loss Reserve to NPL 117.0% 526 100.4% 8.4% 22.30% 67.06% 103.6% 0.96% 1.21% 1.