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State Bank of India has outperformed peers on key profitability metrics through the rate-cut cycle in FY26 while maintaining domestic credit market share. SBI raised Rs 952bn through FCNR(B) deposits, the highest among PSU banks, strengthening its deposit base and liquidity position. With the interest rate cycle turning, SBI is wellpositioned to navigate the changing rate environment, supported by its strong liability franchise and improving funding mix.

* Credit Growth: SBI’s loan growth remained broad-based, accelerating to ~19% YoY in Q1FY27, in line with systemic credit growth. The bank maintained its domestic credit market share at 19.6%, compared with 19.7% in FY26, highlighting its ability to sustain growth while defending its market position. Improved liquidity and healthy end-user demand across agriculture, retail, services and industrial segments provide further support to loan growth, barring seasonal softness.

* Deposits and Liquidity: Deposit growth continues to trail loan growth as SBI gradually reduces its reliance on wholesale term deposits amid intense competition for funding. However, retail deposits grew at a healthy ~14%, in line with the industry, while FCNR(B) inflows provide an additional source of funding. Excess SLR increased from Rs 3.06tn at the end of Q1FY27 to ~Rs 4tn, partly supported by these inflows. A strong retail deposit franchise and ample liquidity should help SBI navigate competitive funding conditions while supporting credit growth and margin stability.

* Margins: Despite intense deposit competition and rising funding costs across the industry, SBI’s NIM improved by 7bps QoQ to 3% in Q1FY27, supported by lower reliance on bulk deposits and a decline in the cost of deposits. Going ahead, FCNR(B) inflows could further reduce dependence on bulk deposits and ease funding pressures, providing comfort on margin sustainability and supporting a gradual improvement in NIM over the long term.

* Asset Quality & Return Ratios: SBI’s asset quality has improved steadily over the past eight quarters, with GNPA declining from ~2.2% in Q1FY25 to 1.47% in Q1FY27. Gross slippage remained controlled at ~0.6% of advances (annualised), while healthy recoveries and upgrades kept net slippages at ~0.3%. Stable margins, disciplined cost management and contained credit costs have supported consistent ROA and ROE of ~1.1% and ~15%, respectively. Sustained asset quality and stable returns provide earnings visibility and reinforce the resilience of SBI’s operating franchise.

* Outlook & Valuation: SBI’s strong liability franchise, resilient margins and improving asset quality position it to deliver sustainable earnings growth. Healthy credit growth, potential benefits from the changing interest rate cycle and FCNR(B) inflows provide support to business growth, margins and liquidity, while a higher contribution from fee income could improve earnings diversification. We maintain our positive view and a target price of Rs 1,265 based on SOTP, valuing the standalone banking business at 1.4x FY28E BVPS, assuming a medium-term ROE of ~15%, and assigning Rs 280 per share to subsidiaries.

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