Buy State Bank of India Ltd For Target Rs. 923 By Religare Broking Limited
Other income supports earnings amid margin headwinds: State Bank of India (SBI) reported a 2.7% YoY and 3.2% QoQ increase in net interest income, totaling Rs. 42,775 crore, which was slightly below expectations due to lower-than-anticipated advance growth. Treasury gains contributed to a 39.4% YoY and 119.3% QoQ rise in other income, reaching Rs. 24,210 crore. This led to a 12% increase in total income, both YoY and QoQ, bringing it to Rs. 28,467 crore. Pre-provision operating profit (PPOP) was in line with expectations, supported by higher other income, although offset by higher operating expenses. PAT decreased by 9.9% YoY, below expectations, mainly due to higher provisions and operating expenses, despite the significant increase in other income.
NIMs seeing some stabilisation: The net interest margin (NIM) recorded a minor dip this quarter, declining by 25 bps YoY and 3 bps QoQ, largely driven by a 4 bps increase in deposit costs on a QoQ basis and a 30 bps rise YoY. Management, however, remains positive about the NIM outlook for FY26, projecting that it will hold steady around current levels (approximately 3%). They also foresee a stabilization of deposit costs in the upcoming quarters, which should help maintain NIM within its existing range.
Loan growth misses guidance; outlook remains cautious: SBI reported gross advances growth of 3.8% QoQ and 12% YoY in FY25, falling short of its 14–16% guidance due to unexpected corporate prepayments by central PSUs through equity-led deleveraging. Corporate loans grew 5.5% QoQ and 9% YoY, while retail loans rose 4.1% QoQ and 11% YoY. SME loan growth was relatively soft at 1.9% QoQ, despite a strong 17% YoY rise, underperforming compared to peers. Growth in unsecured Xpress Credit remained weak at 1.5% QoQ and flat YoY, impacted by tighter credit filters and digital infrastructure revamp. Despite this, the bank expects a rebound, with double-digit growth guided for FY26 in Xpress Credit. Overall, SBI has provided a cautious credit growth guidance of 12–13% YoY for FY26
Deposit growth in line: Deposits for the quarter rose by 2.9% QoQ and 9.5% YoY, reaching Rs. 53.82 lakh crore, driven primarily by term deposits and current account deposits. Term deposits maintained robust growth, increasing by 1.7% QoQ and 11.5% YoY, while current account deposits is gradually picking up as it rose 28% QoQ and 27% YoY. On the back of improvement in the current account, the CASA ratio inched up by 77 bps QoQ to 39.77%. Management continues to guide 10% growth in deposit for FY26 in line with FY25, this growth to be driven primarily by continued momentum in term deposits and current accounts, while maintaining a strong CASA franchise.
Asset quality continue to remains robust: SBI’s asset quality remained strong during the quarter, with Gross NPA and Net NPA ratios declining by 42 bps and 10 bps YoY to 1.82% and 0.47%, respectively. This improvement helped keep the slippage ratio steady at approximately 0.55%, while credit costs remained well within guidance at 0.38%, below the 0.50% threshold. Management expressed continued confidence in the bank’s asset quality and reiterated its expectation to maintain credit costs below 0.50% going forward.
Valuation and outlook:
Despite resilient asset quality and robust deposit growth, SBI’s Q4 performance was below expectations, mainly due to softer-than-expected advance growth and margin pressure. Given the moderation in credit growth guidance to 12–13% for FY26 and ongoing NIM headwinds, we have trimmed our margin and advance growth estimates. We now expect NII, PPOP, and PAT to grow at a CAGR of 20.5%, 13.7%, and 15.8% over FY25–27E, respectively. Accordingly, we revise our target price to Rs. 923, valuing SBI at 1.3x FY27E adjusted book value, and maintain our Buy rating.
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