State Bank of India is one of the largest banks in the country. Among public sector banks, it is the most well-known brand. And, if you are an active investor, chances are that you have thought about buying the stock of State Bank of India.
The share price of State Bank of India has risen from Rs. 163.9 on January 9, 2014, to Rs. 880.9 on July 16, 2024. The bank’s stock price has risen a lot due to its stupendous performance. However, before investing in it, you should know its pros and cons. So, read on…
Pros Of Investing In State Bank Of India
- Huge Scale Of Operations
State Bank of India has a huge scale of operations. As per its annual report for FY 2023-24, it had 22,542 branches in India and another 241 foreign branches as of March 31, 2024.
This means that if there is a growth opportunity in India, the State Bank of India can tap it. Given that India is a growing economy and the disposable income of people is increasing, State Bank of India is poised to grow.
- Robust Financials
State Bank of India is growing at a rapid rate. Its net profit grew from Rs. 14,488 crores in FY 2019-23 to Rs. 61,077 crores in FY 2023-24.
Its net profit has become more than 4 times in four years, which is a remarkable achievement. Its net non-performing assets (NPAs) formed only 0.57% of its net advances as on March 31, 2024. Such a low level of NPAs means that its asset quality is good.
- Diversified Portfolio
One of the benefits of investing in State Bank of India is that it has a diversified portfolio. The bank gives loans to both individuals and corporates. Within corporates, it gives loans to a diverse set of borrowers.
As a result, it’s not affected by a certain kind of borrower, which would have made its business very risky. Today, State Bank of India is a dominant player in home loans, automobile loans, agriculture loans, infrastructure loans, and loans for services.
- Access To Low-Cost Current Account And Saving Account (Casa) Deposits
Due to its wide branch network, State Bank of India has access to low-cost CASA deposits, which formed 41.11% of its total deposits on March 31, 2024 (as per its annual report for FY 2023-24). Such a high CASA ratio helps State Bank of India keep its cost of deposit low because CASA deposits offer a low interest rate to depositors.
Cons Of Investing In State Bank Of India
- Government Ownership
The fact that State Bank of India is a public sector bank means that the government has a significant share of its ownership. As a result, it lags behind many modern-day private banks, which can invest more in their branches, ATMs, and other infrastructure than State Bank of India.
Being a public sector bank, State Bank of India has to open branches in smaller towns and villages, where at times it’s tough to earn profit. However, private banks don’t open branches in regions where they don’t expect a profit.
The fact of the matter is that private banks are run for only commercial reasons. For them, their profit comes first. However, public sector banks, including State Bank of India, are often run for social reasons to an extent. Such banks have to take banking to as many people as possible, even if they don’t make that much money
- Slow Decision-Making
Due to its considerable size, the decision-making in State Bank of India tends to be a bit slower than in banks with a smaller scale.
The bank’s huge scale of operations works both as an advantage and disadvantage. In an extremely dynamic environment, at times, a bank may have to take fast decisions. That may not be possible in SBI.
Conclusion
Whether you are thinking of creating a demat account online or are an experienced investor, you may have thought of investing in State Bank of India. As outlined above, investing in this bank has its pros and cons. While taking this call, you should not go only by the share price of State Bank of India. Instead, you should do a thorough analysis and then take a call.
Frequently Asked Questions
1. What is the State Bank of India (SBI)?
Answer: The State Bank of India is the largest public sector bank in India, offering a wide range of banking and financial services. Established in 1806, it is a government-owned bank with a significant presence both domestically and internationally.
2. What are the advantages of investing in SBI?
Answer: Investing in SBI can offer several advantages, including:
- Stability: Being a government-owned bank, SBI is considered stable and less prone to extreme market fluctuations.
- Dividend Yield: SBI has a history of paying regular dividends to its shareholders.
- Growth Potential: SBI’s large network and extensive customer base can provide growth opportunities.
- Strong Financials: The bank generally has strong financial metrics and a solid track record.
3. What are the risks associated with investing in SBI?
Answer: Potential risks include:
- Economic Slowdown: Economic downturns can impact the bank’s profitability.
- Regulatory Changes: Changes in banking regulations or government policies may affect the bank’s operations and stock performance.
- Credit Risk: As with any bank, there is a risk of non-performing assets (NPAs) affecting profitability.
4. How can I invest in SBI shares?
Answer: You can invest in SBI shares through a brokerage account. You’ll need to:
- Open a demat and trading account with a registered broker.
- Deposit funds into your trading account.
- Place a buy order for SBI shares through your broker.
5. What is the dividend yield of SBI?
Answer: The dividend yield of SBI varies year to year based on the bank’s financial performance and dividend policy. Typically, SBI offers a competitive dividend yield compared to other public sector banks. Check the latest annual report or financial statements for current yield information.
