SBI: A balance of performance and valuation

livemint.com:

SBI management was how long and how far RoE can be stretched without diluting equity. The management appears confident of avoiding equity dilution and articulated well to convey that cost of equity is much higher than cost of debt as the equity investor expects higher returns than the debt investor. In their opinion, the existing capital adequacy position should be able to support about 20% expansion in loan book from ₹37 trillion as of March 2024.

Considering that it has set a target of 13-15% loan growth for FY25, it may be able to avoid equity dilution at least in FY25. Apart from loan growth, the focus would be to sustain NIM at the current level and the correction of bloated cost-to-income ratio would be achieved more through increasing income rather than cutting costs. The management’s outlook on asset quality remains sanguine.

Deposits are the raw material for any bank or lending company, which is where SBI has a competitive advantage. SBI still enjoys the confidence of depositors with the largest share of 23% of total bank deposits in India as of March even in the face of stiff competition from private sector banks. While it is possible to argue that a wide branch network is still helpful in the digital era, the other reason for dominance in deposits is that people still prefer government banks for parking money despite the DCGC fund that guarantees all kinds of deposits of any bank up to ₹5 lakh.