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Equity Research Report
                  Report on- State Bank of India(SBI)




Submitted by :-
             Name                                PG roll no.
Aditya Gupta
Jyoti Khurana
Kritika Verma
Mohit Malik
Ravinder
Surbhi Aggarwal
THE BANKING SECTOR
The first bank in India, called The General Bank of India was established in the year 1786. The
East India Company established The Bank of Bengal/Calcutta (1809), Bank of Bombay (1840)
and Bank of Madras (1843).

The Banking industry plays a dynamic role in the economic development of a country. The
growth story of an economy depends on the robustness of its banking industry. Banks act as the
store as well as the power house of the country’s wealth. They accept deposits from individuals
and corporates and lends to the businesses. They use the deposits collected for productive
purposes which help in the capital formation in the country.

Today, the Indian Banking System is known the world over for its robustness. The Reserve Bank
of India is the central/apex Bank which regulates the functioning of all banks operating within
the country.

The banking system, largely, comprises of scheduled banks (banks that are listed under the
Second Schedule of the RBI Act, 1934). Unscheduled banks form a very small component
(function in the form of Local Area Bank).


BANKING STRUCTURE IN INDIA
MAJOR PLAYERS IN INDIAN BANKING
INDUSTRY
STATE BANK OF INDIA (SBI)
State Bank of India (SBI) is the largest commercial bank in India in terms of assets, profits,
deposits, number of branches and employees. The slogans of SBI are “With you all the way” and
“Pure banking nothing else.” State Bank of India was founded on 1806 at Calcutta as Bank of
Calcutta. The bank has a network of 17000 branches including 4607 branches of its six associate
banks dominates the banking industry in India. The bank has almost 21000 ATMs and a total
workforce of 221000. Also the bank has more than 82 offices in overseas which are spread
across more than 32 countries. The bank became the banker to all class of people and it has
Indian’s cultural and ethical values.



SWOT ANALYSIS


Strengths
SBI is the largest bank in India in terms of market share, revenue and assets.
As per recent data the bank has more than 13,000 outlets and 25,000 ATM centres
The bank has its presence in 32 countries engaging currency trade all over the world
The bank has a merged with State Bank of Saurashtra, State bank of Indore and the bank is
planning to go further acquisition in the current FY2012.
SBI has the first mover advantage in commercial banking service
SBI has recently changed its vision and mission statements showing a sign of inclination towards
new age banking services


Weakness
Lack of proper technology driven services when compared to private banks
Employees show reluctance to solve issues quickly due to higher job security and customers’
waiting period is long when compared to private banks
The banks spends a huge amount on its rented buildings
SBI has the largest number of employees in banking sector, hence the bank spends a
considerable amount of its income in employee’s salary compensation
In spite of modernization, the bank still carries the perception of traditional bank to new age
customers
SBI fails to attract salary accounts of corporate and many government sector employees salary
accounts are also shifted to private bank for ease of operations unlike before


Opportunities
SBI’s merger with five more banks namely State Bank of Hyderebad, State bank of Patiala, State
bank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are in
approval stage
Mergers will result in expansion of market share to defend its number one position
SBI is planning to expand and invest in international operations due to good inflow of money
from Asian Market
Since the bank is yet to modernize few of its banking operations, there is a better scope of using
advanced technologies and software to improve customer relations
Young and talented pool of graduates and B schools are in rise to open new horizon to so called
“old government bank”


Threats
Net profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in the year
FY2011
This shows the reduce in market share to its close competitor ICICI
Other private banks like HDFC, AXIS bank etc
FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tend
to switch to foreign banks for better facilities and technologies in banking service
Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing
Customer prefer to switch to private banks and financial service providers for loans and
mortgages, as SBI involves stringent verification procedures and take long time for processing.
Beta Analysis
Beta of a stock is often defined as the sensitivity of a stock with respect to the market. In other
words the beta of a stock is 1.5 with respect to the market or index means each 1% raise or fall
in the index the stock will raise or fall by 1.5 %.

We took the past three month data for the stock prices of State Bank of India-SBIN and the NSE-
National stock exchange to calculate the beta for this stock. From the data we calculated the
everyday return on the stock as well as the market prices.

To calculate beta the following formula is to be applied:-

Beta(SBIN)= Covariance(SBIN;NSE) / Variance(NSE),where SBIN and NSE indicate the data
of the returns on SBIN and NSE.

From the data we calculated the following :-

             1) Covariance(SBIN;NSE) = 3.56187E-05
             2) Variance(NSE) = 3.15857E-05
             3) Beta(SBIN) = 1.127 approx



The beta indicates that the stock price of SBIN is directly related to the market price of NSE with
a sensitivity level of 1.127

Moreover to calculate the expected rate of return we need to substitute values in the following
equation:-

E(R)= R(f)+Beta(R(m)-R(f))

R(F)=risk free rate of return= 5%

R(m)= market risk= 9.2906E-05

This gives E(R)= 0.0064891
Financial Analysis

Horizontal Analysis

We collected the past four year’s financial data for State Bank of India including the Balance
Sheet, the Cash flow and the Annual Result data and with the horizontal analysis found the
following major findings :-


             Description                       2009           2010          2011          2012
 Growth in Sales Turnover                      30.313%        11.296%       14.650%       30.871%
 Growth in Total Expenses                      26.877%        27.499%       35.136%      -21.942%
 Growth in Gross Profit                        34.762%         7.273%        4.202%       48.544%
 Growth in Net Profit                          35.549%         0.491%       -9.836%       41.657%
 Growth in Earning per Share                   34.825%         0.487%       -9.850%       34.045%
 Total Assets                                  33.666%         9.226%       16.169%        9.135%
 Investments                                   45.621%         3.564%        3.433%        5.615%
 Advances                                      30.169%        16.481%       19.750%       14.650%
 Total Liabilities                             33.666%         9.226%       16.169%        9.135%
 Total Debt                                    35.078%        13.991%       16.136%       11.120%
 Net Worth                                     18.182%        13.808%       -1.460%       29.183%




From the above table we found out that for financial years 2010 and 2011 the company’s
performance had been dipping down leading to a -9% net profit in 2011. But in the financial year
2012 there was a significant rise in the sales and profits and a decrease in the total expenses. The
main cause of this rise was an increase in demand for loans and in the net interest margin for SBI
of 3.89%.

It is also expected that there will be a significant rise of about 16-18% in the demand for loans in
the financial year 2013 hence leading to an expected positive growth in the following year
leading to higher sales and revenue hence higher profits.

We can also analyze that the growth in total debt has also significantly gone down since 2009.
.

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Equity research report

  • 1. Equity Research Report Report on- State Bank of India(SBI) Submitted by :- Name PG roll no. Aditya Gupta Jyoti Khurana Kritika Verma Mohit Malik Ravinder Surbhi Aggarwal
  • 2. THE BANKING SECTOR The first bank in India, called The General Bank of India was established in the year 1786. The East India Company established The Bank of Bengal/Calcutta (1809), Bank of Bombay (1840) and Bank of Madras (1843). The Banking industry plays a dynamic role in the economic development of a country. The growth story of an economy depends on the robustness of its banking industry. Banks act as the store as well as the power house of the country’s wealth. They accept deposits from individuals and corporates and lends to the businesses. They use the deposits collected for productive purposes which help in the capital formation in the country. Today, the Indian Banking System is known the world over for its robustness. The Reserve Bank of India is the central/apex Bank which regulates the functioning of all banks operating within the country. The banking system, largely, comprises of scheduled banks (banks that are listed under the Second Schedule of the RBI Act, 1934). Unscheduled banks form a very small component (function in the form of Local Area Bank). BANKING STRUCTURE IN INDIA
  • 3. MAJOR PLAYERS IN INDIAN BANKING INDUSTRY
  • 4. STATE BANK OF INDIA (SBI) State Bank of India (SBI) is the largest commercial bank in India in terms of assets, profits, deposits, number of branches and employees. The slogans of SBI are “With you all the way” and “Pure banking nothing else.” State Bank of India was founded on 1806 at Calcutta as Bank of Calcutta. The bank has a network of 17000 branches including 4607 branches of its six associate banks dominates the banking industry in India. The bank has almost 21000 ATMs and a total workforce of 221000. Also the bank has more than 82 offices in overseas which are spread across more than 32 countries. The bank became the banker to all class of people and it has Indian’s cultural and ethical values. SWOT ANALYSIS Strengths SBI is the largest bank in India in terms of market share, revenue and assets. As per recent data the bank has more than 13,000 outlets and 25,000 ATM centres The bank has its presence in 32 countries engaging currency trade all over the world The bank has a merged with State Bank of Saurashtra, State bank of Indore and the bank is planning to go further acquisition in the current FY2012. SBI has the first mover advantage in commercial banking service SBI has recently changed its vision and mission statements showing a sign of inclination towards new age banking services Weakness Lack of proper technology driven services when compared to private banks Employees show reluctance to solve issues quickly due to higher job security and customers’ waiting period is long when compared to private banks The banks spends a huge amount on its rented buildings SBI has the largest number of employees in banking sector, hence the bank spends a considerable amount of its income in employee’s salary compensation In spite of modernization, the bank still carries the perception of traditional bank to new age customers
  • 5. SBI fails to attract salary accounts of corporate and many government sector employees salary accounts are also shifted to private bank for ease of operations unlike before Opportunities SBI’s merger with five more banks namely State Bank of Hyderebad, State bank of Patiala, State bank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are in approval stage Mergers will result in expansion of market share to defend its number one position SBI is planning to expand and invest in international operations due to good inflow of money from Asian Market Since the bank is yet to modernize few of its banking operations, there is a better scope of using advanced technologies and software to improve customer relations Young and talented pool of graduates and B schools are in rise to open new horizon to so called “old government bank” Threats Net profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in the year FY2011 This shows the reduce in market share to its close competitor ICICI Other private banks like HDFC, AXIS bank etc FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tend to switch to foreign banks for better facilities and technologies in banking service Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing Customer prefer to switch to private banks and financial service providers for loans and mortgages, as SBI involves stringent verification procedures and take long time for processing.
  • 6. Beta Analysis Beta of a stock is often defined as the sensitivity of a stock with respect to the market. In other words the beta of a stock is 1.5 with respect to the market or index means each 1% raise or fall in the index the stock will raise or fall by 1.5 %. We took the past three month data for the stock prices of State Bank of India-SBIN and the NSE- National stock exchange to calculate the beta for this stock. From the data we calculated the everyday return on the stock as well as the market prices. To calculate beta the following formula is to be applied:- Beta(SBIN)= Covariance(SBIN;NSE) / Variance(NSE),where SBIN and NSE indicate the data of the returns on SBIN and NSE. From the data we calculated the following :- 1) Covariance(SBIN;NSE) = 3.56187E-05 2) Variance(NSE) = 3.15857E-05 3) Beta(SBIN) = 1.127 approx The beta indicates that the stock price of SBIN is directly related to the market price of NSE with a sensitivity level of 1.127 Moreover to calculate the expected rate of return we need to substitute values in the following equation:- E(R)= R(f)+Beta(R(m)-R(f)) R(F)=risk free rate of return= 5% R(m)= market risk= 9.2906E-05 This gives E(R)= 0.0064891
  • 7. Financial Analysis Horizontal Analysis We collected the past four year’s financial data for State Bank of India including the Balance Sheet, the Cash flow and the Annual Result data and with the horizontal analysis found the following major findings :- Description 2009 2010 2011 2012 Growth in Sales Turnover 30.313% 11.296% 14.650% 30.871% Growth in Total Expenses 26.877% 27.499% 35.136% -21.942% Growth in Gross Profit 34.762% 7.273% 4.202% 48.544% Growth in Net Profit 35.549% 0.491% -9.836% 41.657% Growth in Earning per Share 34.825% 0.487% -9.850% 34.045% Total Assets 33.666% 9.226% 16.169% 9.135% Investments 45.621% 3.564% 3.433% 5.615% Advances 30.169% 16.481% 19.750% 14.650% Total Liabilities 33.666% 9.226% 16.169% 9.135% Total Debt 35.078% 13.991% 16.136% 11.120% Net Worth 18.182% 13.808% -1.460% 29.183% From the above table we found out that for financial years 2010 and 2011 the company’s performance had been dipping down leading to a -9% net profit in 2011. But in the financial year 2012 there was a significant rise in the sales and profits and a decrease in the total expenses. The main cause of this rise was an increase in demand for loans and in the net interest margin for SBI of 3.89%. It is also expected that there will be a significant rise of about 16-18% in the demand for loans in the financial year 2013 hence leading to an expected positive growth in the following year leading to higher sales and revenue hence higher profits. We can also analyze that the growth in total debt has also significantly gone down since 2009.
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