State Bank of India. Strong operating performance. Source: Company Data; PL Research

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1 Strong operating performance January 24, 2011 Abhijit Majumder Umang Shah Rating Accumulate Price Rs2,597 Target Price Rs3,300 Implied Upside 27.1% Sensex 19,008 (Prices as on January 21, 2011) Trading data Market Cap. 1,649.0 Shares o/s (m) M Avg. Daily value (Rs m) Major shareholders Promoters 59.40% Foreign 13.99% Domestic Inst % Public & Other 11.07% Stock Performance (%) 1M 6M 12M Absolute (5.4) Relative (0.1) Price Performance (RIC: SBI.BO, BB: SBIN IN) Strong core operating performance, asset quality remains stable: State Bank of India (SBI) reported net profit of Rs28.3bn, up 14.1% YoY and 13.1% QoQ, higher than our as well as street estimates. Key positives were 1) Robust 43.3% YoY and 11.5% QoQ NII growth driven by healthy 21.3% YoY increase in net advances, coupled with a smart 18bps QoQ improvement in the net interest margin to 3.61% (NIM has improved sequentially for the sixth consecutive quarter) 2) Growth in CASA deposits (27.7% YoY and 4.4% QoQ) outpacing the overall deposits growth (14.1% YoY and 2.8% QoQ), resulting in 38bps QoQ improvement in CASA ratio to 48.2%, which is impressive. Overall non interest income de grew by 1.5% YoY and 17.3% QoQ due to subdued fee (down 15.9% QoQ) and treasury income (down 49.6% YoY). Staff expenses include Rs1.4bn towards gratuity provision, along with Rs380m write back of excess provisions made earlier towards wage arrears. Gross NPAs remained largely stable (up 1.0% QoQ) due to lower slippages and aggressive write offs during the quarter. Consolidated PAT increased by 13.5% YoY and 61.0% QoQ to Rs38.1bn, while profits for associate banks increased by 15.0% YoY and 9.8% QoQ. Lower slippages and aggressive write offs result in stable asset quality: Reported gross slippages in Q3FY11 reduced to Rs31.5bn v/s Rs44.1bn in the previous quarter. However, the slippages have been reduced for the unrealized interest of previous years (URIPY) to the tune of ~Rs7.7bn. As a result, gross slippages for the quarter stood at ~Rs39bn, which is still lower compared to earlier quarters. Nevertheless, the net slippages stood contained at Rs2.3bn due to similar amount of up gradations. Total assets restructured during the quarter stood at ~Rs20.8bn on account of restructuring of a chunky account from the aviation sector (Rs16.0bn). Provision coverage (including technical write offs) improved to 64.1% from 62.8% in the previous quarter. Key financials ( Y/e March) E 2012E 2013E Net interest income (Rs m) 236, , , ,778 Growth (%) Operating profit (Rs m) 183, , , ,832 PAT (Rs m) 91, , , ,896 EPS (Rs) Growth (%) Net DPS (Rs) Q3FY11 Result Update (Rs) 4,000 3,500 3,000 2,500 2,000 1,500 1, Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Source: Company Data; PL Research Profitability & Valuation E 2012E 2013E NIM (%)** RoAE (%) RoAA (%) P / BV (x)* P / ABV (x)* PE (x)* Net dividend yield (%) Source: Bloomberg Source: Company Data; PL Research **Calculated on average assets *Refer Page 5 Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

2 Valuations and Outlook: SBI continues to perform well on the core operating front, with continued strong traction seen in its low cost deposits and margins being held up quite well. Slippages are trending downwards, but still remain at elevated levels. Credit costs are likely to remain high till H1FY12, given the RBI stipulation to meet 70% provision coverage by September Although at 1.6x its FY12E ABV, the stock is attractively valued, we observe that historically, SBI s margins have eroded significantly in a rising interest rate scenario. Moreover, uncertainty over asset quality and changes at the top management could act as an overhang on the stock. Consequently, we maintain our Accumulate rating and price target on the stock. January 24,

3 Q3FY11 Result Overview (Rs m) Y/e March Q3FY11 Q3FY10 YoY gr. (%) Q2FY11 9MFY11 9MFY10 YoY gr. (%) Interest Income 214, , , , , Interest Expense 123, , , , ,783 (2.4) Net Interest Income 90,498 63, , , , Non Interest Income 33,139 33,657 (1.5) 40, , , Treasury Income 2,202 4,370 (49.6) 1,973 5,863 16,912 (65.3) CEB 24,774 21, ,450 78,321 61, Net total Income 123,637 96, , , , Operating Expenses 55,992 50, , , , Employee 35,117 31, , ,614 91, Other operating expenses 20,876 19, ,873 59,602 51, Operating profit 67,645 46, , , , Core operating profits 63,363 38, , , , Provisions 20,515 8, ,215 62,244 20, Loan loss provisions 16,323 5, ,625 55,282 29, Profit before tax 47,130 37, , , , Tax 18,849 12, ,342 47,879 37, Net Profit after tax 28,281 24, ,014 82,437 72, Asset Quality Gross NPA's 234, , , , , Gross NPA's (%) Net NPA's 116, , , , , Net NPA's (%) Coverage Capital Adequacy (%) CAR Tier NIM reported (%) NIM calculated (%) Balance Sheet Items Deposits 8,789,790 7,709, ,553,450 8,789,790 7,709, CASA 3,937,910 3,083, ,771,400 3,937,910 3,083, CASA Ratio (%) Advances 7,266,490 5,989, ,807,490 7,266,490 5,989, January 24,

4 Net advances grew by 21.3% YoY and 6.7% QoQ. Deposits growth remained calibrated as they grew by 14.0% YoY and 2.8% QoQ. Notably, CASA deposits continued to grow at a rapid pace by 27.7% YoY and 4.4% QoQ, leading to 38bps QoQ improvement in CASA ratio to 48.2%. Trend in business growth 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Non CASA deposits Advances Growth (RHS) CASA deposits Deposits Growth (RHS) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Trend in net interest margins NIM continued to improve for the sixth consecutive quarter as it increased by 18bps QoQ to 3.61%. Improvement in margins could be explained through a 13bps QoQ decline in the cost of deposits due to strong increase in CASA deposits. Moreover, the recent PLR hikes resulted in a marginal 4bps QoQ improvement in the yield on advances, which too aided margin expansion. 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% Cost of deposits Yield on advances NIMs (RHS) 3.8% 3.6% 3.4% 3.2% 2.8% 2.6% 2.4% 2.2% 2.0% Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 GNPAs increased marginally by 1.0% QoQ, on the back of lower net slippages during the quarter. Provision coverage, although remained stable QoQ at 50.0%, including technically written off accounts, it stood at 64.07% v/s 62.78% in the previous quarter. Trend in Q o Q change in NPAs Incr. GNPA Incr. NNPA NNPA % (RHS) GNPA % (RHS) 3.5% 2.5% 2.0% 1.5% 1.0% 0.5% Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 January 24,

5 Gross slippages during the quarter declined sharply to Rs31.5bn (2.1% annualized) v/s Rs44.1bn last quarter. However, adjusting for unrealised interest of the previous years (which has been set off against gross slippages), the slippages stood at ~Rs39bn (2.6% annualized). Moreover, slippages from the restructured portfolio during the quarter stood at Rs6.4bn, cumulative slippages stood at Rs28.9bn, 15.7% of the restructured portfolio. Trend in slippages based on previous years closing advances Source: PL Research, Company Data Gross Slippages (Annualized) 2.8% 2.1% 1.9% Slippages (%) (RHS) 3.1% 2.1% Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 3.5% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Quarterly movement in NPAs During the quarter, SBI reversed the unrealized interest of previous years (URIPY) to individual borrower s accounts. This has resulted into lower gross slippages to the tune of Rs7.7bn. Adjusting for the same, the gross slippages for the quarter stand at ~Rs39bn. However, similar amount has also been adjusted among up gradations, as a result of which the net slippages during the quarter remains unchanged. Movement in NPAs Q1FY11 Q2FY11 Q3FY11 Movement in NPAs Q1FY11 Q2FY11 Q3FY11 Opening GNPAs Opening GNPAs Fresh Slippages 40.8 * Fresh Slippages 40.8 * Upgradation + Recoveries Upgradation + Recoveries Write offs Write offs Closing NPAs Closing NPAs *Includes slippages worth Rs8.5bn from SBIn portfolio SOTP Valuation Business Basis Multiple Value/Share (FY12E) % of SOTP Multiple Value/Share (FY13E) % of SOTP Standalone Core Banking x ABV** 1.8 2, % 1.8 2, % SBI (associate banks) x ABV % % SBI life Appraisal Value % % SBI Mutual Fund % of AUM 5.0% % 5.0% % SBI Capital Market x PAT % % Other investments (UTI MF, NSE etc.) % % Total 2, % 3, % 12 month forward price target based on 25% of FY12E & 75% of FY13E price targets above ** Rs106 and Rs120 per share reduced for investment in subsidiaries from Book Value & Rs532 & Rs627 per share reduced from the CMP for value of subsidiary for FY12 and FY13 respectively. We have also applied a 15% holding company discount. January 24,

6 Income Statement (Rs m) Int. Earned from Adv. 506, , , ,016 Int. Earned from Invt. 177, , , ,272 Others 26,250 17,355 26,271 31,558 Total Interest Income 709, ,691 1,032,997 1,234,846 Interest expense 473, , , ,068 NII 236, , , ,778 Growth (%) Treasury Income 21,168 7,500 9,000 9,000 NTNII 128, , , ,048 Non Interest Income 149, , , ,048 Total Income 859, ,950 1,230,635 1,468,894 Growth (%) Operating Expense 203, , , ,994 Operating Profit 183, , , ,832 Growth (%) Total Provisions 43,948 93, , ,868 PBT 139, , , ,964 Tax Provisions 47,589 64,845 72,408 91,068 Effective Tax Rate (%) PAT 91, , , ,896 Growth (%) Balance Sheet (Rs m) Par Value No. of equity shares Equity 6,350 7,221 7,221 7,221 Networth 659, ,741 1,065,775 1,223,883 Adj. Networth 550, , ,291 1,136,442 Deposits 8,041,162 9,247,337 11,096,804 13,316,165 Growth (%) Low Cost deposits 3,800,397 4,253,775 4,882,594 6,125,436 % of total deposits Total Liabilities 10,539,563 12,438,438 14,927,061 17,945,733 Net Advances 6,319,141 7,553,983 9,271,286 11,454,794 Growth (%) Investments 2,857,901 3,236,568 3,661,945 4,128,011 Total Assets 10,539,564 12,438,438 14,927,061 17,945,733. Quarterly Financials (Rs m) Y/e March Q4FY10 Q1FY11 Q2FY11 Q3FY11 Interest Income 179, , , ,128 Interest Expense 112, , , ,630 Net Interest Income 67,214 73,037 81,149 90,498 Non Interest Income 45,085 36,900 40,052 33,139 CEB 34,858 24,096 29,450 24,774 Treasury 4,256 1,734 1,973 2,202 Net Total Income 112, , , ,637 Operating Expenses 60,361 48,593 57,631 55,992 Employee Expenses 35,918 30,739 36,758 35,117 Other Expenses 24,443 17,854 20,873 20,876 Operating Profit 51,939 61,344 63,570 67,645 Core Operating Profit 47,683 59,610 61,597 65,443 Provisions 23,494 15,514 26,215 20,515 Loan loss provisions 21,868 17,334 21,625 16,323 Investment Depreciation 356 (2,983) 4,318 2,088 Profit before tax 28,445 45,830 37,355 47,130 Tax 9,779 16,688 12,342 18,849 PAT before EO 18,666 29,142 25,014 28,281 Extraordinary item PAT 18,666 29,142 25,014 28,281 Key Ratios CMP (Rs) 2,597 2,597 2,597 2,597 Equity Shrs. Os. (m) Market Cap (Rs m) 1,649,032 1,875,341 1,875,341 1,875,341 M/Cap to AUM (%) EPS (Rs) Book Value (Rs) 1,039 1,308 1,476 1,695 Adj. BV (75%) (Rs) 944 1,233 1,427 1,655 P/E (x) P/BV (x) P/ABV (x) DPS (Rs) Dividend Yield (%) Profitability (%) NIM RoAA RoAE Efficiency Cost Income Ratio (%) C D Ratio (%) Business per Emp. (Rs m) Profit per Emp. (Rs m) Business per Branch (Rs m) 1,149 1,292 1,487 1,720 Profit per Branch (Rs m) Asset Quality Gross NPAs (Rs m) 195, , , ,471 Net NPAs (Rs m) 108, ,862 94,484 87,441 Gr. NPAs to Gross Adv. (%) Net NPAs to Net Adv. (%) NPA Coverage (%) January 24,

7 Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai , India Tel: (91 22) Fax: (91 22) Rating Distribution of Research Coverage % of Total Coverage 60% 50% 40% 30% 20% 10% 0% 53.8% 30.3% 13.6% 2.3% Buy Accumulate Reduce Sell PL s Recommendation Nomenclature BUY : Over 15% Outperformance to Sensex over 12 months Accumulate : Outperformance to Sensex over 12 months Reduce : Underperformance to Sensex over 12 months Sell : Over 15% underperformance to Sensex over 12 months Trading Buy : Over 10% absolute upside in 1 month Trading Sell : Over 10% absolute decline in 1 month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document. For Clients / Recipients in United States of America: All materials are furnished courtesy of Direct Access Partners LLC ("DAP") and produced by Prabhudas Lilladher Pvt. Ltd. ("PLI"). This material is for informational purposes only and provided to Qualified and Accredited Investors. You are under no obligation to DAP or PLI for the information provided herein unless agreed to by all of the parties. Additionally, you are prohibited from using the information for any reason or purpose outside its intended use. Any questions should be directed to Gerard Visci at DAP at January 24,