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* State Bank of India (SBIN), the largest lender in India, showed broad-based loan book growth and witnessing healthy on-ground demand momentum for retail, SME and mid-corporate segment. In FY24, advances grew at 15.8% YoY to Rs.37,039bn and continued the growth momentum in Q1FY25 as well to reach Rs.37,491bn. Given the strongest distribution network developed by the bank over the years, deposits grew at robust 11% YoY in FY24 to Rs.49,161bn and at 8% in Q1FY25 to Rs.49,017bn.

* In rising interest rate cycle scenario starting post-CoVID, SBIN witnessed healthy NIM expansion rising from 2.8% in Q1FY20 to peak of 3.6% in Q4FY24. The bank is seeing some moderation of NIMs and is now stabilizing at ~3.2-3.3% levels. Anticipated RBI’s decision on start of rate easing cycle would normalize credit cost pressures on NIMs.

* While the bank improved its asset quality notably through the support of RBI’s CoVID relief policies, it was able to curtail any new stress formation in the system by keeping SMA 1 and SMA 2 levels lower. Gross NPA ratios fell from 5.4% in Q1FY21 to 2.2% in Q1FY25 and Net NPA improved from 1.9% to 0.6% over the same period.

* With additional provisioning for wage revision largely behind, would support the bank to control opex growth leading to PPoP margin improvement. growth in future. This would enhance bank’s bottom-line profitability which was cumulatively for last three years (FY22-24) higher than combined profits of last twenty years.

* Healthy loan book growth support by strong liability franchise and lowest cost of funds remains the key drivers for the company future performance. Healthy asset quality makes the balance sheet well positioned to absorb externalities while controlled OPEX and lower credit costs enables it maintain its return ratios.

* Anticipating the bank to benefit from likely pick up in rural demand, we include SBIN at CMP `781, trading at P/B 1.4x FY26E.

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