State Bank of India’s (SBIN) fourth-quarter performance delivered a nuanced mix of stability and pressure. While net profit remained in line with expectations at Rs 186.4 billion, surging operating expenses and provisioning masked an otherwise resilient growth in core banking metrics. Motilal Oswal maintains a BUY rating, citing robust loan growth, improved asset quality, and operational stability, with a 12-month target price of Rs 915, premised on 1.2x FY27E ABV.

Stable NIM Despite Headwinds

SBIN reported a net interest income (NII) of Rs 427.7 billion, up 3% year-on-year, maintaining its net interest margin (NIM) at 3.0%. Domestic NIM stood stronger at 3.15%. Despite repo rate reduction weighing on spreads, yield benefits from MCLR repricing and a rising CD ratio served as buffers.

Management anticipates maintaining full-year NIM around 3%, even though quarterly variations are expected amid a rate cut environment.

Operating Profit Growth and Cost Pressures

Operating profit rose 9% YoY to Rs 312.9 billion, although operating expenses surged 18% YoY to Rs 357 billion, largely due to a spike in overheads and staff-related provisions. Notably, SBIN booked INR 16 billion in performance-linked incentive (PLI) provisions, including new schemes introduced for senior management.

Despite the rise in costs, the Cost-to-Income (C/I) ratio improved 184bps QoQ to 53.3%, reflecting operational efficiency.

Asset Quality Remains Healthy with Declining GNPA and SMA Levels

SBIN’s Gross NPA ratio improved 25bps QoQ to 1.82%, and Net NPA fell 6bps QoQ to 0.47%. Total slippages stood at Rs 43.2 billion for the quarter, contained within historical averages.

Importantly, the SMA book declined to just 8bps of total loans, from 24bps in Q3FY25. The PCR stood stable at 74.4%, underlining strong provisioning buffers.

Loan Book Growth Drives Momentum

Loans expanded 12.4% YoY and 4% QoQ, with key contributors including:

Retail Loans: Up 11.4% YoY

Agriculture: Up 14.3% YoY

SME: Up 16.9% YoY

Corporate: Up 9.0% YoY

A minor deceleration in Xpress Credit was observed (0.5% QoQ), but the overall mix remained diversified and well-balanced.

Deposit Mobilization and CASA Stability

Deposits rose 9.5% YoY to Rs 53.8 trillion, while the CASA ratio increased 77bps QoQ to 40%, indicating robust current account inflows. Term deposits continued to support total deposit growth, with domestic Credit-Deposit (CD) ratio rising to 69.7%, reflecting higher loan deployment from deposits.

Outlook: Growth Guidance and Capital Position

SBIN is targeting 12–13% credit growth for FY26, aligned with industry trends. The bank secured board approval for a Rs 250 billion capital raise, aiming to bolster its CET-1 ratio further (currently at 10.81%).

With RoA guided at 1.0% and RoE estimated at 16.1% for FY27, the management reaffirmed confidence in sustaining healthy returns.

Valuation Highlights and Investment Case

Motilal Oswal has slightly revised its earnings forecast downward by 4.6%/5.0% for FY26/FY27 due to margin compression and elevated provisioning. However, the intrinsic value remains solid.

The SoTP-based valuation breakdown is as follows:

Conclusion: BUY with Confidence Amid Margin Tightening

State Bank of India continues to demonstrate operational resilience in the face of macroeconomic adjustments. With slippages under control, credit growth resilient, and capital adequacy intact, the bank offers an attractive investment proposition for FY26–FY27. Motilal Oswal’s BUY recommendation with a target price of Rs 915 signals continued upside potential, underpinned by improving returns and strategic growth levers.