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Steady quarter; treasury gains drive earnings

Domestic NIM guidance maintained at >3%

* State Bank of India (SBIN) reported a 1QFY26 PAT of INR191.6b (13% beat), aided by robust treasury gains and controlled opex.

* NII declined 4% QoQ (flat YoY) to INR410.7b (in line). NIM contracted 10bp QoQ (down 32bp YoY) to 2.9% (MOFSLe of 2.88%).

* Opex declined 22% QoQ (up 8% YoY) to INR278.7b (7% lower than MOFSLe), driven by a decline in employee expenses as well as other expenses.

* SBIN’s loan book grew 12% YoY (0.8% QoQ), while deposits grew 11.7% YoY/1.7% QoQ. CASA ratio declined 61bp QoQ to 39.4%.

* Slippages stood elevated at INR83.9b (0.75% slippage ratio). GNPA ratio increased 1bp QoQ to 1.83%, while NNPA ratio stood flat at 0.47%. PCR stood stable at 74.5%.

* We increase our earnings by 3%/3.5% for FY26/27E to factor in robust treasury gains and controlled opex, and estimate FY27E RoA/RoE at 1.1%/15.5%. Reiterate BUY with a TP of INR925 (1.2x FY27E ABV).

Revenue growth broadly in line; asset quality remains stable

* SBIN reported a 1QFY26 PAT of INR191.6b (13% beat), amid healthy treasury income and controlled opex.

* NII declined 4% QoQ to INR410.7b (largely in line). NIM contracted 10bp QoQ/32bp YoY to 2.9%. The bank expects FY26 domestic NIMs to be maintained at >3%, with NIMs anticipated to rebound from 3QFY26 onwards.

* Provisions stood at INR47.6b (down 26% QoQ). Other income grew 55.4% YoY (down 28% QoQ), led by a healthy treasury income of INR63.3b. ? Opex grew 8% YoY (down 22% QoQ) to INR278.7b (7% lower than MOFSLe). As a result, PPoP grew 15.5% YoY (12% higher than MOFSLe).

* Advances grew 11.9% YoY/0.8% QoQ. Of this, retail grew 12.5% YoY, corporate declined 3% QoQ (up 6% YoY), agri stood flat QoQ, and SME grew 19% YoY/4.4% QoQ. Xpress credit has remained flat for quite a few quarters; the bank expects the segment to revive gradually in FY26.

* Deposits grew 11.7% YoY/1.7% QoQ, with CASA ratio declining 61bp QoQ to 39.4%. As a result, the cost of deposits increased 10bp QoQ to 5.21%.

* Slippages increased to INR83.9b in 1QFY26 (slippage ratio stood at 0.75% vs 0.55% in 4QFY25). GNPA ratio increased 1bp QoQ to 1.83%, while NNPA ratio stood flat at 0.47%. PCR ratio stood broadly stable at 74.5%. Credit cost stood at 0.47%, while SMA book stood at 12bp of loans.

* Subsidiaries: SBICARD clocked a PAT of INR5.6b (down 6% YoY/up 4% QoQ). SBILIFE’s PAT grew 14% YoY (down 27% QoQ) to INR5.9b. PAT of the AMC business grew 24% YoY/38% QoQ to INR8.45b.

Highlights from the management commentary

* The bank reiterates its domestic NIM guidance of 3%. Margins may see a contraction in 2Q but are expected to recover from 3Q onwards.

* RoA stood at 1.14% in 1QFY26 and may face marginal pressure if treasury gains moderate. The bank targets a C/I ratio of below 50% on a sustainable basis.

* Fresh slippages affected overall asset quality, but no segment-specific concerns were noted. Recoveries and pullbacks have already offset some of the stress.

Valuation and view

SBIN reported a steady quarter, led by strong treasury gains, controlled operating expenses, and in-line NII. NIM contracted 10bp QoQ to 2.9%, but management expects a gradual recovery in FY26, supported by improved liquidity from CRR cuts, moderation in deposit cost, and benefits from the recent capital raise. Credit growth stood at 12% YoY, with the unsecured Xpress Credit book remaining flat, while a robust credit pipeline is expected to support a healthy outlook over FY26. Domestic CD ratio remains benign and will be supportive of incremental credit growth. Despite elevated slippages (seasonal trend in 1Q), the bank does not anticipate any material stress across lending segments. We raise our earnings by 3%/ 3.5% for FY26/27E and estimate FY27E RoA/RoE at 1.1%/ 15.5%. We reiterate our BUY rating with a TP of INR925 (1.2x FY27E ABV).

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