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Long-term bet on India’s financialization story

State Bank of India (SBI), India's largest public sector bank, holds a strong 22-23% market share in credit. With consistent loan growth across retail, corporate, and SME sectors, it benefits from a stable deposit base and funding advantage. SBI’s strong internal accruals, leadership in term deposits, and efficient credit management position it well for future growth, especially with an expected revival in corporate capex.

Investment Rationale

Well-positioned in terms of LDR, LCR, SA and regulatory deposits: In the current environment of constrained credit growth due to high loan-to-deposit ratios (LDR), SBI is well-positioned with a low domestic LDR of 69%. While its deposit growth is softer than the system average, the low LDR makes this less of a concern. SBI holds a high share of stable retail deposits and has minimal run-offs, giving it flexibility to use bulk deposits if needed. Despite offering lower savings account rates than private peers, SBI maintains a high SA share and leads in term deposit pricing, though it needs to improve its current account share and fee income.

Could gain market share as peers struggle: Unlike other PSU banks, SBI has maintained a steady credit market share of 22-23%, with consistent loan growth across SME, retail, and corporate segments. It stands to benefit from a corporate capex revival. Although overall loan growth is slowing, SBI is well-positioned to gain market share due to its improved credit delivery, funding advantage, and challenges at its nearest competitor. With strong internal accruals and reasonable CET 1, raising fresh capital would further enhance its growth prospects.

Technology investments drive cost efficiency: Over the years investment in technology has been instrumental in bringing its cost-to-income ratio below 50%. Through digital transformation, automation, and streamlined processes, the bank has effectively reduced operational costs while boosting income growth. This tech-driven approach has improved margins and positioned SBI for long-term profitability and competitiveness. As the bank continues to leverage technology, it enhances its ability to grow while maintaining cost efficiency

Outlook & Valuation

SBI is well-positioned with a low loan-to-deposit ratio, allowing flexibility despite softer deposit growth. Its stable retail deposits and consistent 22-23% credit market share enable it to gain market share as competitors struggle. Additionally, technology investments have improved cost efficiency, reducing the cost-to-income ratio below 50% and enhancing long-term profitability. Based on these factors, we expect NII/ PPOP/PAT to grow at a CAGR of 14.2%/7.6%/7% over FY24-26E. We have a Buy rating on the bank with a target price of Rs 941.

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