State Bank of India (SBI) is one of the most famous financial institutions in the country. There is hardly a part of India without an SBI branch and it is equally difficult to meet someone who has never banked with this bank.
If you are keen on the banking sector, you should always keep an eye on State Bank of India’s share price because it is one of the largest banks in India.
Over the years, many mutual funds and retail investors have invested in its stock and generated significant returns. That said, before investing in SBI, one must understand the pros and cons of doing it.
Pros of investing in State Bank of India (SBI)
- Outstanding asset quality: Asset quality is one of the most important criteria while investing in any financial institution. A bank’s asset quality shows what percentage of its loans are likely to be paid back along with the interest due on them. SBI’s performance is outstanding on this count. On June 30, 2004, its net non-performing assets (NPA) stood at just 0.57%. Typically, in the banking sector, a net NPA of 1% is considered ideal. SBI’s performance is better than the benchmark. This lends solidity to its business.
- Huge corporate and retail loan books: Corporate loans and retail loans pose different kinds of challenges to a bank. Hence, most banks focus either on corporate loans or on retail loans. However, SBI enjoys a leadership position in both these kinds of loans. It provides finance to some of the biggest companies in India. On the retail side, it is one of the most active banks when it comes to housing loans, credit cards, education loans, etc. As SBI focuses on both these categories of loans, its overall loan portfolio is more diversified than those banks, which concentrate on only one category of loans.
- Low-cost deposits: SBI has the widest branch network across India. As a result, it has access to low-cost current and savings bank accounts (CASA). As of June 30, 2024, CASA deposits formed around 40.7% of its total deposits, which helps it keep its cost of funds low, thereby giving a boost to its profits.
Cons of investing in State Bank of India (SBI)
- Profit-making is not the only objective of the bank: Being a public sector bank, SBI has many other responsibilities apart from just making a profit for its shareholders. For example, it has to make banking services available to people living in small towns and villages. For this objective, it has opened many branches in faraway places. However, private banks do not open branches in places where they do not expect a profit. For private banks, their bottom line comes first, but that is not the case with SBI. However, for an investor, this aspect of SBI works as a disadvantage because an investor is considered about the profitability of companies he invests in.
- Slower decision-making: SBI is the biggest bank in the country due to the massive number of branches it has. Besides, it is present in almost all segments of banking. Due to its huge scale of operations, its decision-making can be somewhat slower than smaller banks.
Conclusion
If you have access to one of the best trading platforms in India, like Bajaj Broking, you should track the banking sector because it offers opportunities to invest every now and then.
Within the banking sector, you should track SBI. The bank has performed well in recent times. However, before investing in it, you must keep in mind the pros and cons of making such an investment.
Moreover, you should track State Bank of India’s share price regularly and make an investment when the time is right.
Additional Read: For more information about our business and services, feel free to visit our Google My Business page.