STATE BANK OF INDIA Stock Research Report

CRUISING COMFORTABLY TOWARDS ROA DELIVERY OF 1%+…

State Bank of India (SBIN) is the largest public sector bank in terms of assets, deposits, branches, number of customers, and employees and has a pan-India presence. The RBI has designated SBI as a Domestic Systemically Important Bank (D-SIB), underscoring its continued functioning as critical for the Indian economy.

Key Rational

◼ Strengthening deposit franchise:

The bank remains confident of delivering strong deposit growth of 10-11% in FY25 while maintaining its deposit market share at 22-23% and funding incremental credit growth with incremental deposits. SBI has witnessed strong growth in CA deposits, supported by multiple initiatives, along with TD, and is now focusing on enhancing growth in SA deposits. SBI aims to reduce its dependence on government accounts for CA deposits. To shift back to business-driven CA deposits, the bank has established transactional business hubs and set up relationship management teams for CA deposits, to ensure strong growth in this segment. We expect deposit growth to remain healthy at ~11% CAGR over FY24-27E.

◼ Broad-based credit growth, momentum to remain buoyant:

The management has highlighted that growth opportunities across segments continue to remain buoyant and has reiterated its guidance of delivering credit growth of 14-16% in FY25. In its retail portfolio, the bank is seeing growth improving in the Xpress Credit portfolio alongside auto loans, home loans, and personal gold loans. The Agri and SME portfolio continues to deliver healthy growth driven by portfolio diversification efforts and enhancing distribution. In the corporate portfolio, the management has highlighted a strong pipeline of Rs 6 Tn, with demand remaining buoyant across sectors. We believe SBI remains well positioned to deliver a strong credit growth of ~15% CAGR over FY24-27E while maintaining a balanced LDR.

◼  Non-banking subsidiaries to boost overall performance:

Apart from the core banking, SBI’s subsidiaries are expected to continue adding further value. The bank has a strong presence in various financial services operations, most of which are generating stable returns and support the overall performance of the bank.

◼ Cruising along to deliver RoA of 1%+:

The management has indicated that the CoD/CoF have peaked out and should stabilise hereon. In terms of yields, the bank raised ~30bps MCLR in H1FY25 and the full impact of the same would be visible in the coming quarters. 42% of the book is linked to MCLR. Thus, the management remains confident of maintaining NIMs even in the event of a rate cut in Feb’25. We expect NIMs to remain steady at ~3.3% over FY25-27E. With the impact of wage revision behind, the bank will aim at maintaining a C-I Ratio at <50% over the medium term. Asset quality across segments continues to remain strong. With the bank focusing on risk-calibrated growth, we do not expect any major asset quality challenges, thereby keeping credit costs steady at 50-60bps

◼  Valuation:

SBI remains well poised to deliver a strong earnings growth of 12% CAGR over FY24-27E alongside maintaining RoA of 1-1.1% driven by (1) Strong growth while maintaining a comfortable LDR, (2) Focused efforts to improve fee income profile, (3) Contained Opex ratios and (4) Steady credit costs and strong asset quality.

◼ Key Risks: a) Significant slowdown in credit growth

Key Financials (Standalone)