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SBI posted a ~6% beat on PAT at Rs192bn/1.1% RoA, led by higher other income (especially treasury gains) and controlled opex, partially offset by higher provisions. Credit growth remained well above the system’s at ~12% YoY, led by healthy growth in the retail and MSME segments, while corporate growth moderated due to higher pre-payments (Rs120bn). The management believes that the healthy pipeline on project financing, coupled with expected acceleration in mortgages in 2H, should support overall credit growth at ~12% with upward bias in FY26E. Margins could correct a bit in 2Q albeit improve in 2H, benefiting from the CRR/deposit rate cut and the recent capital raising with exit NIM at 3%. We largely retain FY26-28E earnings and expect the bank to deliver a healthy RoA of ~1.0-1.1%/RoE of ~15-17%. We maintain BUY with TP at Rs975 (valuing the SA bank at 1.2x Jun-27E ABV/subs at Rs270/sh).

Healthy growth; relatively resilient margins

SBI reported in-line credit growth of ~12% YoY/0.8% QoQ, driven by healthy momentum in the retail and MSME segments. The corporate book, however, witnessed moderation due to higher pre-payments (Rs120bn) and a shift toward market instruments (Rs160- 180bn). In Xpress Credit, the bank had slowed down growth, to curb over-leveraging among low-income borrowers; however, growth should resume with better profiles and underwriting filters. Similar to most PSBs, NIM contraction was limited to 10bps QoQ at 2.9% due to higher CoF, in turn led by contraction in CASA deposits. However, the management expects the NIM trajectory to be U-shaped, moderating in Q1 and Q2, and improve from 3Q, benefiting from deposit rate/CRR cut and the recent capital raise. Ahead, the bank projects credit growth of ~12 (with upward bias), led by corporate credit growth at 10-11% and MSME growth at 19-20%.

Seasonally higher agri slippages

Gross slippage was elevated to Rs84bn/0.9% of loans (of which Rs15.9bn has been recovered) due to higher seasonal agri slippages, leading to flattish GNPA ratio at 1.8%. The management indicated that it remains watchful of any potential impact of ongoing trade disruption on its corporate/SME portfolio, although it does not expect any blow out scenario. Similarly, the stress in Xpress Credit has largely peaked and the bank should thus resume lending in this segment. On the corporate front, the bank expects recovery momentum to continue, leading to steady decline in NPAs and thus lower credit cost.

We retain BUY with unchanged TP of Rs975

We remain positive on PSBs in general (including SBI), due to their improving growth trajectory, margin resiliency, and better treasury gains/NPA recoveries which should support their decadal best RoAs. SBI too will be participating in this story; hence we retain BUY with unchanged TP of Rs975, valuing the standalone bank at 1.2x Jun-27E ABV and subs/investments at Rs270/share.

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