Standing of State Bank of India

India has the world’s largest banking network with about 150,000 bank branches. However, the per capita branch network of India is lower than few other countries, which is due to India’s large population. The instant comparison comes for China and India. China has 2nd largest bank branch network, only after India. China has 20 banks in the world’s top 100 banks. In terms of assets, the world’s top 4 banks are from China. In terms of size, India has only 2 banks in the world’s top 100 banks. State Bank of India (SBI) is the first, the only public sector bank, and the second is HDFC Bank which is a private sector bank.

In the Indian banking history, SBI has legacy of more than 200 years. Its origins started when East India Company established the presidency banks (Calculata, Madras, and Bombay) in India during the years of 1800 to 1850. These Banks extended credit lines to the East India Company against revenues collected, under collection, and expected to be collected in the future periods. Out of its total trading rule period of 250 years in India, the East India Company reigned as the commercial government of India for at least 100 years after which it transferred the rule to British Crown. During those 100 years, the presidency banks have actively designed and originated credit for the Commercial Government of India viz., the East India Company.

Later in year 1921, these three presidency banks are merged to form Imperial Bank of India (IBI). IBI continued the legacy of the presidency banks and had engineered several new banking services to meet requirements of the British Crown. IBI rendered commercial banking functions to all its customers but mainly rendered government banking functions to the British Crown. Thus, IBI was the de facto India’s central bank until year 1935 when Reserve Bank of India (RBI) was officially made as India’s central bank. IBI is the first Indian bank to open a branch outside India, i.e., in London in year 1946. Later, with the enactment of SBI Act 1955, IBI became SBI. Regardless of RBI’s official role as India’s central bank, SBI continued to act as the principal government banker and rendered significant services along with other public sector banks such as Punjab National Bank (PNB), Canara Bank, and Bank of Baroda (BOB) which also handle government business. SBI has wider international presence with 198 offices in 37 countries and 300 correspondents in 72 countries. With more than 10 mergers & acquisitions, SBI has a special record in Indian banking history. In terms of branch network, assets, government business, solutions, and overall banking business, SBI continued its leadership. ?

In terms of physical presence, SBI is the largest bank in India with more than 22,500 branches, 63,580 automated cash machines, and 83,000 Customer Service Points. SBI has 30% share in the total India banking network in India. Within public sector SBI has a share of more than 47%. In rural and semi-urban areas, SBI has 20% share in total India and 28% in public sector banks.

In terms of government business, SBI is the largest government business provider with a share of 63%. Numerous programs, schemes, distributions, and collections related to the government activities involving funds are handled by SBI.

In customer reach terms, SBI has more than 50 crores customer base. Thus one in every three in India is a customer of SBI. In terms of employee count, SBI has about 250,000 employees and has a share of about 17% in total India’s banking employment.

In terms of operations, SBI is gigantic. Its balance sheet size is Rs. 61 trillion. SBI enjoys 22.5% of total deposits in the country and 19% in the total advances. The current and savings account (CASA) deposits are 40% which are at appreciable level but could improve to match with the competition of private sector banks.

SBI has been recording credit growth of about 15%, in line with the overall credit growth of the country. Its capital adequacy is at 14.28% which is good but could improve further. Its gross non performing assets (NPA) is at 2.24%, net NPA at 0.57%, and slippage ratio is 0.62%. These are the lowest in the public sector and are comparable with the best private sector banks. SBI is earning return on equity (ROE) of more than 20% and return on assets (ROA) of more than 1%, which are at appreciable levels in the banking sector. In terms of sector-wise loans, home loans constitute 22.48%, retail loans 15.8%, services 14%, infrastructure 12.23%, agriculture 10%, and balance in other sectors.

SBI has been quite efficient in its cost of funds and in earning its yields. SBI is the second most profitable company in Inda with net profit of Rs. 61,077 crores. The cost of its deposits is 4.8%. The net interest margins (NIMs) are above 3.28%, yield on advances at 8.91%, and yield on its investments is at 7%. Considering that about 80% plus investments are in SLR (statutory liquidity ratio) instruments, earning 7% yield on investments is highly appreciable.

SBI’s manpower productivity is good. The business per employee is Rs. 34.10 lakhs and profit per employee is Rs. 26.20 lakhs. SBI has an average attrition rate of about 1.50%. SBI is the McKinsey in Indian banking sector since many senior level officers in other public sector banks and in most of the private banks are from SBI.

In terms of technology, SBI has been among the frontrunners ever since it embraced core banking solutions in early 1990s. Currently the YONO platform of SBI is very popular in the market with about 8 crore users on its platform. It is expected that with the ensuing YONO 2.0, the number of users will double in few years.

Since SBI and HDFC are the only two banks in the world’s top 100 banks, it is usual that a comparison is drawn between these two banks. The dividend yield of SBI is 1.60% while that of HDFC Bank is 1.15%. The price to book value (PBV) of SBI is 2.6 times while that of HDFC Bank is 3.70 times. The Price Earnings (P/E) of SBI is 11.25 times which is almost same as that of the industry P/E of 12 times. The PE of HDFC Bank is 20 times.? However, with Rs. 7.67 trillion market cap SBI is behind HDFC bank which has Rs. 12.54 trillion market cap. Also, securities of HDFC Bank are more liquid than SBI. For reference, traded volume of shares of HDFC Bank as a percentage of its total market cap is about 54% whereas that of SBI is about 27.6%. The profit per employee for SBI is about 50% of that of HDFC Bank. SBI is ranked as 5th most valuable Indian brand with brand value of $8.2 billion. However, HDFC is ranked 3rd with brand value of $10.4 billion.

Thus, while SBI is still among the top companies and the top bank in many parameters, it has the need and scope to improve in terms of market cap, brand ranking, and employee productivity terms. The government business is contributing about 7% of net profit for SBI and therefore it is critical to fortify this source amidst increasing competition. The new Chairman of SBI has the task of addressing these aspects. The employees are excited to see one of their long-term employees rising to the highest position and are quite confident that SBI will leave others far behind and sooner.

Disclaimer: Dr. Kishore Nuthalapati is an Economist, and is the CFO of BEKEM Infra Projects Pvt Ltd, Hyderabad, India. Views are his personal and do not reflect those of any of the organizations he is or was associated with.