The country’s largest lender, SBI, is doing well on all fronts
State Bank of India just delivered a class in how to navigate a tricky credit environment. While private sector banks grapple with slowing loan demand and margin pressure, the government-owned behemoth posted 6% quarterly loan growth while keeping net interest margins above the psychologically important 3% mark. The third-quarter performance prompted both Nuvama and Systematix to raise their assessments, with the former calling it “the best among large banks.”
“Loans grew 6% QoQ/15% YoY led by 8%/11% corporate loan/SME rise,” Nuvama reports. That’s notably stronger than most large private banks, which have seen corporate loan growth decelerate amid cautious business sentiment. “Domestic loans rose 7% QoQ/15% YoY while overseas grew 2% QoQ/13% YoY,” the brokerage adds, showing strength isn’t limited to one geography.
Additionally, momentum is building across segments. Systematix notes, “The growth in RAM segment was led by SME segment which grew by 10.8% QoQ (up 21% YoY) followed by Agri segment which grew by 6.5% QoQ (+16.6% YoY). The retail segment grew by 4.4% QoQ (+15% YoY).”
Management’s confidence shows in revised guidance. The bank “has increased its guidance from 12-14% to 13-15% for FY26,” per Systematix. In an environment where several banks have trimmed growth targets, raising the midpoint by 50 basis points exhibits conviction about pipeline quality and conversion.
The Margin Resilience Story
Net interest margins—the profitability gap between what banks earn on loans and pay on deposits—held up better than feared. “Reported NIM rose 2bp QoQ to 2.99%,” Nuvama notes, though the brokerage provides important context: “However, adjusted for interest on tax refunds of Rs 7.7 bn (Rs 3.7 bn QoQ) NIM fell 1bp QoQ.”
Strip out the one-time tax refund benefit, and margins declined just one basis point despite significant deposit repricing pressures. Systematix points out: “The whole bank NIM during the quarter was at 2.99% up by 2bps QoQ (down by -2bps YoY) while the domestic NIM was at 3.12%, up by 3bps QoQ (down by -3bps YoY).”
The stability is remarkable given the moving parts. “The cumulative domestic YoA for 3QFY26 was at 8.61%, down by -7bps QoQ. This was partially offset by a decline of -6bps in the cumulative domestic CoD to 5.07%,” Systematix notes. Yields on loans fell 7 basis points while deposit costs declined 6 basis points—a near-perfect offset that preserved margins.
Management’s margin guidance provides comfort. “NIM will be above 3% in Q4,” Nuvama states directly. Systematix elaborates: “The management has guided for the exit NIM of 4Q to remain stable at 3%. It has also retained its guidance of maintaining through cycle NIMs above 3% levels.”
Asset Quality Holds Firm
Credit quality metrics remained reassuring. “Slippage remained steady and low at 0.5% of lagged loans,” Nuvama reports. “GNPL fell 3% QoQ to 1.57%.” Gross non-performing loans declining while the bank grows aggressively suggests the new vintages are performing well.
Systematix provides granular detail: “The annualised gross slippage ratio during the quarter came in at 0.4%, down by -3 bps QoQ but up by 1bp YoY. The recoveries and upgrades in the quarter were at Rs. 23.7 bn, resulting in a net addition in slippages of ~Rs. 24.9 bn.”
Credit costs—the expense of setting aside provisions for potential loan losses—improved sequentially. “Specific credit cost was 28bp lower than 38bp QoQ while total credit cost was 29bp versus 39bp QoQ,” per Nuvama. Systematix confirms: “The credit cost was at 0.4%, down by -10bps QoQ.”
The provision coverage ratio staying elevated at 75.5% provides cushion against deterioration. With non-performing loan ratios falling and provision buffers rising, the balance sheet looks increasingly resilient.
Earnings BeatÂ
Profit after tax of Rs 210.3 billion came in “15.9% above our estimate,” Systematix notes, though one-time items boosted the number. “PAT was 10% higher than consensus driven by special dividend of Rs 22 bn from SBI AMC and Rs 7.7 bn of interest on tax refunds,” Nuvama notes.
Strip those out, and core earnings still impressed. “SBI’s core earnings are stronger than private banks for the third consecutive quarter with stable NIM, higher than sector loan growth and strong fees,” Nuvama emphasises.
Fee income showed mixed trends. “Fees grew 16% YoY/fell 2% QoQ,” says Nuvama. The year-on-year growth demonstrates momentum, while the sequential decline likely reflects seasonality. Systematix notes: “Though the fee income declined by 2% QoQ, the same was supported to an extend by higher ‘Customer Value Enhancement’ (CVE) income mainly led by higher life insurance sales.”
Operating expenses pleasantly surprised. “Employee expenses fell 4% QoQ led by a sharp fall in actuarial provisions,” per Nuvama, with both brokerages noting minimal impact from new labor codes—just Rs 160 million. “Total opex fell 1% QoQ, 4% lower than consensus,” Nuvama adds, suggesting improved operating leverage.
The Gold Loan Wildcard
One interesting development: explosive gold loan growth. “While gold loan growth YoY is very high at 96%, LTV on retail gold stays low at 51% giving further room for expansion,” Nuvama observes. Nearly doubling gold loans in a year suggests customers seeking liquidity against collateral rather than unsecured credit.
Systematix provides context: “The management had anticipated double digit growth in the ‘Xpress’ (personal loan) segment. However, demand was diverted to gold loans to an extent, specially from the salaried segment, due to the rate differentials amongst the two products.”
Capital and Liquidity Remain Comfortable
The bank’s capital position strengthened. “CET1 (including profit) was 12.57%,” Nuvama reports, well above regulatory requirements. “Domestic LDR rose to 73% from 70% QoQ while LCR stays healthy at 125%,” the brokerage adds, showing State Bank can continue lending without straining liquidity.
The low risk-weighted asset density—”53.4% versus 52.8% QoQ”—means capital goes further in supporting loan growth. State Bank can expand its balance sheet efficiently without burning capital.
Valuation UpgradesÂ
Both brokerages raised their assessments meaningfully. Nuvama “revise TP to Rs 1,250/1.8x FY27E from Rs 1,150/1.5x” and reiterate State Bank as their “Top ‘BUY’.” Systematix “revised our target price to Rs. 1,245 (Rs. 1,165 earlier) and maintain our BUY rating,” valuing “the standalone bank at 1.4x on its FY28E book value per share of Rs. 677” plus Rs 320 per share for subsidiaries.
The multiple expansion—from 1.5 times to 1.8 times book value for Nuvama—reflects improved earnings quality and growth visibility. At current levels around Rs 800-850, both targets imply meaningful upside of 45-50%.
