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State Bank of India (SBI) is the largest commercial bank in India, with a balance sheet size of
over Rs7t. The bank, along with associate banks, has a network of over 14,000 branches
across India and controls over 18% of the banking business.
The government owns 57% of the bank, with FIIs owning 20% (maximum permissible is
20%).Over the last couple of years, SBI has been focusing on drawing significant synergies
through an internal consolidation of its associate banks.
For 2QFY10, we expect loans to grow 3% QoQ translating into loan growth of 17%+ YoY.
On a higher base deposit growth will be lower at ~10% YoY. We expect NII growth of
35%+ YoY due to a sharp improvement in margins.
Continued benefit of deposit repricing, higher CASA mobilization and improving CD ratio
can lead to sequential margin expansion and provide an upside to our 4% sequential
increase in NII.
Non-interest income is expected to grow by 6% YoY however fee income is expected to
grow over 20% YoY. Trading profits are expected to be lower.
With AFS portfolio of ~27% and duration of 3.6 years, there could be an MTM hit for SBI
in 2QFY11. SBI will have to provide additional provisions for NPA to comply with 70% PCR
by September 2011. We expect overall provisioning expenses to increase ~75% YoY.
We have not factored in the State Bank of Indore merger in our earnings estimates, which
will sequentially add 3-4% in business growth and NPA.
Valuation and view:
SBI would command valuation premium for its size and for being proxy to growth in
financial service space in Indian economy. We assume consolidated RoE of 16-18% over
FY09-12.
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