State Bank of India (SBI) is the largest public sector bank in the country with an asset base of Rs. 21,85,877 crores and a network of 22,010 branches. Through its subsidiaries and joint ventures, SBI Bank is also a key player in NBFC services, such as insurance (life and general), asset management, cards and payment services and equity broking.
Despite having similar prospects to ICICI Bank and Axis Bank in RoE recovery, SBI has seen negligible re-rating thus far. This is disappointing considering that SBI has also made broadly similar changes to its business model and continues to enjoy a solid liability franchise. On asset quality, there has been a reduction in gross NPL (20% in FY2020 and 6% in 1HFY20) and net NPLs (40% in FY2019 and ~10% in 1HFY20).
The bank is well poised to show sharp improvement in return ratios by FY2021-22 on the back of recovery in loan growth, healthy operating profit growth and sharp reduction in credit costs.
A solid low cost franchise, ability to shift gears such as retail business, healthy capital adequacy ratios leading to lower risk of below book dilution, solid performance by subsidiaries and an inexpensive valuation could drive SBI's rerating in the market.
Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.
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