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Chugging along

In 4QFY25, SBIN reported PAT of ~INR186bn, down 10% YoY but ~5%15% above consensus/JMFe, driving RoA/RoE to ~1.1%/17%. PPOP growth was 9% YoY, ~13%/32% above consensus/JMFe. This beat was driven by higher than expected treasury gains (partly led by NPA transfer) and strong recoveries from WO pool. Loan growth was healthy at ~12%/4% YoY/QoQ which along with stable NIMs QoQ led to NII growth of ~3%/3% YoY/QoQ. Opex was elevated (+18%23% YoY/QoQ) due to a higher Performance Linked Incentives (PLI) for employees. Asset quality was stable as gross/net slippage ratio stood at 43bps/26bps (flat/-5bps QoQ). Though, credit cost inched up to ~63bps (~9bps in 3QFY25) due to inclusion of part provisions for PLI schemes of ~7bn. Mgmt. expects to maintain loan growth of ~12-13%. Margins are expected to remain under pressure in the near term as repo linked book (~29%) reprises faster than deposits. However, mgmt. highlighted that MCLR would be adjusted only after incremental CoD takes effect and expects to maintain margin at ~3% over a medium term. In our view, profitability will remain under pressure in FY26 given pressure on margins, normalization of credit costs and higher cost to income ratio. However, higher treasury gains should hold ROA/ROE at ~1%/15% mark. Further, core bank currently trades at 0.9xFY27BVPS which provides comfort. We revise our FY26/FY27 EPS estimates by +5%/+1% and value the core bank at 1.2x FY27e Adj BVPS with SoTP based TP of INR 960 (subs valued at INR 242). Maintain BUY

* Sequential pickup in growth; though lower than guidance: Loan growth of +12% YoY, +4% QoQ (at INR 41.6 trln) was lower than expected as corporate segment slowed down to 11% YoY (vs 16% in 3Q25) due to prepayment from some of the PSUs post govt payouts. However, corporate pipeline remained strong with substantial loans sanctioned but not disbursed as of Mar-25. SME (+17% YoY) and Agri (+14% YoY) segments grew faster than Retail (+11% YoY), followed by Retail (+12% YoY). In 4Q25, domestic deposit growth (9% YoY, 3% QoQ) was led by CA accretion (+28% QoQ, +27% YoY). CASA ratio increased to 38.4% (vs 37.6% QoQ). Domestic CD ratio was at 69.7% while overall CD ratio was at 77.4%. We build loan growth CAGR of 14% over FY25-FY27e.

* Margins hold up well; outlook muted: In 4Q25, SBIN reported stable domestic margin of 3.15% (flat QoQ) as increase in yields (+4bps QoQ) was offset by increase in CoD (+4bps QoQ) resulting in NII of INR 427.7bn (+3% YoY, +3% QoQ, +1.6% JMFe). Margins are expected to remain under pressure in the near term as repo linked book (~29%) reprises faster than deposits. However, mgmt. highlighted that MCLR would be adjusted only after incremental CoD takes effect and expects to maintain margin at ~3% over a medium term.

* Asset quality stable: GNPA/NNPA declined to 1.8%/0.5% (-25bps/-6bps) as the bank wrote off ~INR 100bn in 4Q25. Gross slippage ratio stood at 43bps (flat QoQ) however, recoveries improved to 17.4 bn vs 12.1bn QoQ rendering net slippage ratio at 26bps (- 5bps QoQ). Total provisions for the quarter were higher at INR 64bn (vs INR 9bn QoQ) as it included provisios of PLI schemes work ~7bn. Hence, credit cost inched up to ~63bps (~9bps in last quarter). We build in avg credit cost of 45bps over FY26e-FY27e.

* Subsidiaries performance: SBI Life reported subdued VNB growth of 7% YoY in FY25 while individual rated premium grew by 12% YoY to INR 194bn. The insurer managed to maintain its VNB margins at 27.8% while growth struggled. SBI Cards reported PAT degrowth of c.20% YoY for FY25 while cards in force grew 10% YoY. Amongst unlisted subsidiaries, SBI General Insurance reported a strong PAT of INR 5.1 bn in FY25 (against PAT of INR 2.4bn in FY24). SBI MF saw its PAT growing to INR 25.3bn in FY25 (up 23% YoY) while SBI capital reported PAT of INR 12.1bn in FY25 (-26% YoY).

* Valuation and view: The core bank currently trades at 0.9x FY27e Adj BVPS. In our view, profitability will remain under pressure in FY26 given pressure on margins, normalization of credit costs and higher cost to income ratio. However, higher treasury gains should hold ROA/ROE at ~1%/15% mark. We revise our FY26/FY27 EPS estimates by +5%/+1% and value the core bank at 1.2x FY27e Adj BVPS with SoTP based TP of INR 960 (subs valued at INR 242). Maintain BUY.

Key Concall Takeaways -

* Credit growth was lower than expected 14% as some of the central PSUs prepaid their loans as they received large payouts from the government. The bank expects overall loan growth to be 12-13%.

* Corporate book is expected to grow at around 12% with strong visible pipeline.

* As the rate cut cycle plays out, the bank expects treasury and MTM gains to support total income in FY26.

* Q4 generally contains higher provisions for employee expenses

* SBI’s board has approved an enabling resolution to raise equity capital worth 25,000 Cr in one or more tranches through QIP/FPO or any other permitted mode or combination during FY26. Mgmt. is expected to look for an opportune time and attractive valuation before going through with the fund raise.

* Mgmt. expects the pace of rate cut will decide the NIM trajectory. 29% of the loans are linked to repo rate, which ~70% are linked to either MCRL or are fixed rate. The bank stated that it would reduce its MCLR rate only after lower incremental COD takes shape. While the margins will remain under pressure in the near term, mgmt. expects to protect the 3% level on margins.

* Cost to income ratio has improved in 4Q25 and mgmt. expects to keep the ratio between 50-51% going ahead driven by higher income on a rigid cost base. Digital channels are expected to bring in operating efficiencies.

* Increase in Yields during 4Q25 was on account of some older MCLR repricing coming into effect.

* Other operating Expense at 17,693 Cr includes new PLI scheme for employees above scale 4 (chief manager) and above employees.

Detailed breakup of other income:

1. Fee income – 9,896 Cr

2. Forex gains - 2,859 Cr

3. Profit on sale of Investments (treasury income) - 6,879 Cr – This contains income from transfer of NPA account to NARCL (85% of 3,300 Cr) amounting to ~2,800 Cr

4. Misc. other income – 4,575 Cr – includes 2,375 Cr of AUCA recoveries

Detailed breakup of provisions:

1. Provisions on NPAs – 3,964 Cr – Includes recovery of ~500 Cr (15% of 3,300 Cr) from account transferred to NARCL

2. Provision on standard assets – 400 Cr

3. Provision on depreciation of investment – 441 Cr

4. Other provisions – 1,636 Cr – Includes provisions on account of Performance linked incentives (PLI) worth ~700 Cr – which has nothing to do with non-performing loans

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