State Bank of India (SBI) is still well-positioned to provide sustainable growth with high profitability, according to a recent report from Motilal Oswal Financial Services Ltd (MOFSL). This growth would be driven by solid loan growth, managed opex, and provisions. With tools like the CD ratio and MCLR re-pricing in place to lessen the impact of the high cost of deposits, the management of the state-run bank has projected generally steady profitability moving ahead, according to the local brokerage.
SBI stated that it is in an excellent position to maintain its growth trajectory because of its low CD ratio, solid underwriting, and ongoing YONO momentum. According to the brokerage, headline asset quality ratios have been consistently improving, and asset quality performance is still solid.
One of our top suggestions in the industry is SBI. We project a net profit CAGR of 15% during FY24–26E, with a RoA/RoE ratio of 1.1%/18.5% in FY26E. A revised target price of Rs 1,015 (1.5 times FY26E ABV + Rs 235 from subsidiaries) is used to reiterate the buy recommendation.
According to MOFSL, State Bank of India has been performing well all over for the previous several years and has broken new profitability records (PAT above Rs 60,000 crore in FY24). According to the brokerage, the PSU bank has shown significant progress in raising underwriting standards, and the steady improvement of its balance sheet has resulted in NPAs reaching spotless levels.
Over the last two years, SBI has generated returns of 34% compound annual growth rate, increasing its market capitalization to $89 billion. According to MOFSL, SBI has produced the best-in-class return on equity and loan growth among big global banks, according to our evaluation of large global banks.
SBI outperformed many significant competitors by delivering a 16 percent CAGR in loans during FY22–24. According to MOFSL, the present size of the SBI balance sheet, at Rs 62 lakh crore, exceeds the GDP of over 174 nations worldwide. It stated that unless SBI continues to provide consistent growth, this difference would only get worse.
Even at this enormous scale, SBI has shown excellent adaptability and execution, and it is well-positioned to keep up this pace. As a stable policy environment and ongoing reforms continue to support overall economic activity, SBI is well-positioned to capitalize on growth possibilities thanks to its excellent liability profile, outstanding CD ratio, and strong technological capabilities, the statement said.
With robust loan growth, reduction in opex ratios, and regulated credit cost (35–40bps), MOFSL predicted that SBI may generate a 16 percent compound annual growth rate (CAGR) in earnings during FY24–26. This would translate into an FY26E RoA/RoE of 1.1 percent/18.5 percent.
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