The pros and cons of investing in SBI

SBI is shown to be commercially run but for a social objective and it is an extension of the government. Do you want to be there, asks Ajay Srivastava, CEO, Dimensions Corporate Finance.

SBI’s Yono has become one of the largest digital platforms in India. Their credit card and insurance businesses are making money. The AMC is the biggest in India, How long would SBI suffer for being a PSU bank?
One of the PSU holdings I have is State Bank of India. But I cannot find people who bank with State Bank. It is a wonderful bank for industries because they lend a lot of money to industries and that is a good part. They lend to a lot of consumers somewhere in the system because their numbers show that. Yono etc have done a wonderful job in terms of reaching out to a large mass of customers. But the value of State Bank is the sale value of Yono. It is not that PSU managers will run it. The point is how do you expect to compete in a space with intellectual capital when you pay one-hundredth of what the market would pay people who manage these companies?

At the end of the day, it is all about customer experience. How many of us deal with nationalised banks anymore? So, no matter how good the things look -- SBI Life Insurance, SBI Mutual Fund -- the breakdown value of SBI is some Rs 40,000 crore which is dirt cheap. Everything works in its favour. What does not work is who owns the bank. Governance is the issue. UPL is a good company but the problem of auditors brought it down; Cafe Coffee Day was a good, wonderful franchise. Look what the promoter did to the company.

So it is not about the company it is also about who owns it and governance. Tomorrow they want to do a social lending platform which is better than SBI. They have done it in the past. To me, State Bank is a government entity out there trying to masquerade as a bank. Although it is not a government department, they do funding for various social schemes. I am not saying it is not required, but that is their mandate.

Therefore, as a pure commercial decision to invest, you are investing in a company which is not 100% commercially run. You are investing in a company which is shown to be commercially run but for a social objective and is an extension of the government. Now do you want to be there? That is your call. It has not performed so far for this reason, I doubt it will perform.

The pressure is going to mount on the government for social equality. How do you put the money in the hands of people? There are good parts and bad parts, take a pick whether governance will prevail or fundamentals of Yono and insurance will prevail.