About State Bank of India State Bank of India (SBI) is the largest bank in India.

The bank traces its ancestry back throughthe Imperial Bank of India to the founding in 1806 of the Bank of Calcutta, making it the oldestcommercial bank in the Indian Subcontinent. The Government of India nationalised the ImperialBank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it theState Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India.SBI provides a range of banking products through its vast network in India and overseas,including products aimed at NRIs. The State Bank Group, with over 16000 branches, has thelargest branch network in India. With an asset base of $250 billion and $195 billion in deposits,it is a regional banking behemoth. It has a market share among Indian commercial banks of about 20% in deposits and advances, and SBI accounts for almost one-fifth of the nations loans.SBI has tried to reduce its over-staffing through computerizing operations and Golden handshakeschemes that led to a flight of its best and brightest managers. These managers took theretirement allowances and then went on the become senior managers at new private sector banks.The State bank of India is 29th most reputable company in the world according to Forbes. Fundamental Analysis: Fundamental analysis refers to the study of the core underlying elements that influence theeconomy of a particular entity. It is a method of study that attempts to predict price action andmarket trends by analyzing economic indicators, government policy and societal factors within abusiness cycle framework. The fundamental analysis of a company involves the followingparameters:1. Macroeconomic Analysis2. Industry Analysis3.

Company AnalysisHow does an investor determine if a stock is undervalued, overvalued, or trading at fair marketvalue? With fundamental analysis, this may be done by applying the concept of intrinsic value. If all the information regarding a corporation's future anticipated growth, sales figures, cost of operations, and industry structure, among other things, are available and examined, then theresulting analysis is said to provide the intrinsic value of the stock.To a fundamentalist, the market price of a stock tends to move towards its intrinsic value. If theintrinsic value of a stock is above the current market price, the investor would purchase thestock. However, if the investor found through analysis that the intrinsic value if a stock wasbelow the market price for the stock, the investor would sell the stock from their portfolio or takea short position in the stock . Macroeconomic Analysis: Change in rates by RBI: Looking at the changing scenario, RBI keeps on changing rates such as Repo Rate,Reverse Repo Rate and Cash Reserve Ratio. These rates have a direct relation withBanks performance and in turn share prices are linked with banks performance. Thus, achange in these rates or even a speculation of change in these rates affects share prices. Global Analysis: Any change in global economy or in other words, global changes also affects Indianeconomy. For example: The recession was first observed in USA and later on it caught itslead in other countries too. When it entered India, the share market crashed literally.

Itaffected many banks as ICICI and others, resulting in loss of peoples confidence towardsbanks. Change in Governments Policy: The government takes desired steps and keeps on reviewing its policies, rules, regulationsand procedures. A change in FDI and FII inflow restrictions, entry exit barriers forforeign banks in India, EXIM regulations, change in Basel norms, etc form a part of important government policies. For example if government allows entry of foreign banksin India, then competition would rise, and it may happen that those foreign banks mayoutperform and leave our own banks far behind. Thus, some restriction would follow andthis will definitely affect share prices. Effect of Inflation on banking operations: Several economists have found that countries with high inflation rates have inefficientlysmall banking sectors and equity markets. This effect suggests that inflation reduces bank lending to the private sector, which is consistent with the view that a sufficiently high rateof inflation induces banks to ration credit. Effect of monetary policy on Banking Sector: Monetary policy affects banking sector in many ways. One way is through creditmarkets. Because of imperfect information, incomplete contracts and imperfect bank competition, monetary policy may affect banks loan supply. In particular, expansivemonetary policy may increase banks loan supply directly (bank lending channel), orindirectly by improving borrowers net worth and, hence, by reducing the agency costs of lending

. Industry Analysis: Life Cycle Analysis: Bank plays an important role in the economic development of the country. The entire commercialand industrial activities are well knitted with the banks. One cannot imagine the cessation of thebanking activities even for a day. There may be an economic crisis in the country if the banksstop functioning for some days.In the early days, the banking business was confined to receiving of deposits and lending of money. But the modern bankers undertake wide variety of functions to assist their customers.Banks are like any other business in that they produce goods and services to customers. Like anyother businesses, their products have life cycles.Cheques are in a decline phase of their life cycle and use of cheques is declining rapidly andbeing replaced by electronic bill pay and debit cards. Internet Banking and Electronic Bill payare in their growth phase as more and more customers are using these services. Cards or ChequeCards are in their maturity phase as they are accepted by nearly everyone.So overall, the banking industry is in a GROWTH PHASE, as new measures are being adoptedovertime so as to make transactions speedy and easy away from competitor banks. They do this by offering lower financing, preferred ratesand investment services. The banking sector is in a race to see who can offer both the bestand fastest services, but this also causes banks to experience a lower ROA. They thenhave an incentive to take on high-risk projects. In the long run, we're likely to see moreconsolidation in the banking industry. Larger banks would prefer to take over or mergewith another bank rather than spend the money to market and advertise to people. 3.

Company Analysis: Last Trade: 2,089.60 Prev Close: 2,009.25Open: 2,025.00Bid: 2099.00Ask: 2100.00Day's Range: 2021.00 - 2100.0052wk Range: 894.00 - 1,9 35.00Volume: 603,636Avg Vol (3m) : 511,585 Report card Attribute Value DatePE ratio 14.54 16/09/09EPS (Rs) 143.67 Mar, 09Sales (Rs crore) 17,472.76 Jun, 09Face Value (Rs) 10Net profit margin (%) 12.03 Mar, 09Last dividend (%) 290 11/05/09Return o n average equity 15.74 Mar, 09To determine the intrinsic value, as it is given, the projected EPS is 143.67 and P.E ratio is 13.62.Therefore, the intrinsic value is calculated as follows:Intrinsic value = Projected EPS * Appropriate PE Ratio= 143.67 * 14.54= 2088.96 Since the stock prices are expected to rise and there is not much difference between the intrinsicvalue and market price, it would be better to hold the stock, so as to have more profits.Despite a debilitating economic environment, State Bank of India exhibited a strong bottom-linefor FY09. The Bank's FY09 net profit increased 35.5% yoy to Rs. 91.2 bn. While the growth inthe first three quarters was led by NII, in Q4'09 it was dependent on other income. For the nextfew quarters, we foresee SBIs bottom-line to be pressured by declining yields, higher coststructure, and larger provisioningoutlay required due to rising delinquencies. The stock currently trades at a P/B, which we believe is high considering the uncertainty regarding thequantum of the Banks delinquencies and

the growth in SBI Lifes new-business premium. Wesee limited upside from current levels and therefore, downgrade our rating to Hold .State Bank has been recording relatively high Return on Equity ranging from 16% to 22% inearlier years -due to high financial leverage employed. There are only three levers for boostingROE -Net Margin, Asset Turnover and Financial Leverage. In State Bank of India case, both NetMargins and Asset Turnover is lower than other banks. It is the higher Financial Leverage thathas been boosting up Return on Equity for SBI -which is not a very good sign.However to its credit, FY09 financial leverage is down to a more conservative 15.74 still at muchhigher levels than other banks like HDFC Bank (11.58x), ICICI Bank (10.77x), or Axis Bank (12.52x).Besides Return on Assets has seen consistent gradual improvement over last 3 years toreach 1 percent -much better than ICICI Bank's (0.71%), comparable to Axis Bank's (1.16%), butfalling much short of HDFC Bank's magnificent 1.42 percent

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