Banking Sector – State Bank of India (SBI)

SBI is an excellent example of why investors should study the banking cycle rather than simply track the share price. On 26 August, PSU banks were among the strongest pockets of the market, with the PSU Bank index gaining around 1% during the session. Reuters also reported that state-owned banks were leading gains, supported by expectations of healthy loan growth and profitability. For a beginner, the important lesson is to track credit growth, net interest margin (NIM), asset quality, slippages and credit costs when analysing a bank. A rising share price alone does not tell us whether the underlying banking business is becoming stronger. Investor learning: When analysing a bank such as

, do not focus only on P/E. Study ROA, ROE, NIM, GNPA/NNPA, provision coverage and loan growth together.