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Monday, December 29, 2008

State Bank of India (SBI) - Elephant in Banking sector

Its aggressive stance now, to shore up its business when most of its peers are cautious is noteworthy, is helping SBI enhance its market share. It is one of the best investment options in banking sector.

State Bank of India (SBI) is often compared to an elephant for its size. Although earlier, it has lost some share to private banks, its aggressive stance now, to shore up its business when most of its peers are cautious is noteworthy, is helping SBI enhance its market share. SBI’s market share in terms of business volumes has been on an ascendency (around 16 per cent in deposits and advances) from its lows in 2007. Well-diversified loan portfolio, strict monitoring and risk management measures, would help it to tide over the current economic slowdown.

SBI’s presence in rural and sub-urban regions is a distinct advantage over its private peers. A large branch network and improving distribution network would sustain greater volumes from rural areas. Greater propensity to mobilise low-cost deposits and technology-driven connectivity would ensure profitability, besides volumes from these regions.

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State Bank of Saurashtra’s amalgamation with the parent could pave for another round of consolidation with its associates. Together, the SBI group in terms of scalability and size has a large 15,000-branch network and balance-sheet strength of over Rs 10 lakh crore, which would help tug competition, when the banking sector is eventually opened to foreign competition.

SBI also has interests in financial services businesses like life insurance, asset management through its subsidiaries. Conservatively, analysts put the value of these businesses at Rs 220 per share. SBI is trading at an estimated P/BV of 1.3 times its FY10 standalone book value, and can deliver 20-25 per cent in the next one year.

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