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Broad investment thesis remains intact

Our view – Management guides for reasonably healthy loan growth

Balance sheet growth – Loan growth outcome and guidance were both positive, while management was currently willing to allow deposit growth to lag: Whole bank advances grew 2.9%/15.3% QoQ/YoY driven by all segments, barring retail. In terms of guidance, the bank is looking at a credit growth in the range of 14-16% YoY. There is good corporate credit visibility due to healthy sanctions and undisbursed quantum amounting to Rs 6 trn, which used to be Rs 4.5 trn earlier. There is also healthy utilisation of working capital limits. Corporate credit growth is expected to remain in the high teens. Deposit growth is expected to be lower at 10-11% YoY. The bank is comfortable on liquidity with the LCR at 129% and the domestic loan to deposit ratio at 67.8%.

Asset quality – Slippages remained well under control declining sequentially while management guided for sustained recoveries: Gross NPA additions amounted to Rs 49.51bn for 2QFY25, translating to an annualized slippage ratio of 0.5% for the quarter. Gross NPA additions had amounted to Rs 87.07bn during 1QFY25. The current run rate of recoveries from technically written off accounts will continue. Provisions were Rs 45.06bn as against Rs. 34.49bn in 1QFY25 and Rs. 1.15bn in 2QFY24, translating to calculated annualised credit cost of 47bps. Total loan loss provision was Rs 36.31bn, translating to an annualised specific credit cost of 38bps.

Net interest margin – NIM declined on sequential basis but management guided for broadly stable margin for the rest of the year: Global NIM at 3.14% was down -8bps/- 15bps QoQ/YoY. More than 40% of the bank’s book is MCLR linked, which will reprice gradually. Also, with EBLR, the t-bill linked loans are short-term whose pricing can be changed. A moderate rate of 25 bps is expected in February. However, there have been MCLR rate hikes, which will play out after December and which provide a 20 bps cushion.

We maintain ‘Buy’ rating on SBI with a revised price target of Rs 1025: We value the bank at 1.3x FY26 P/BV for an FY25E/26E RoE profile of 15.8/15.9/16.6%. We assign a value of Rs 278 per share to the subs., on SOTP.

Other Highlights (See “Our View” above for elaboration and insight)

* Opex control: Total cost to income ratio was at 48.5% down by -91/-1288bps QoQ/YoY and the Cost to assets was at 1.8% up/down by 9/-41bps QoQ/YoY.

* Fee income: Core fee income to average assets was at 0.4%, down -1bp/-2bps QoQ/YoY.

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