SBI Q3 Review — Motilal Oswal Reiterates 'Buy', Says Robust Asset Quality; Lower Provisions Drive Earnings

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Motilal Oswal Report

State Bank of India reported a mixed quarter as the provisioning reversal boosted earnings, while margins moderated 13 basis points QoQ. Other income too reported a miss, affected by weak treasury/forex performance. The bank now expects net interest margins to remain above 3%, supported by levers such as credit-deposit ratio and Marginal Cost Of Funds Based Lending Rate repricing (20 bp utilized, 35bp cushion in MCLR pricing).

Credit growth was healthy, while the unsecured book (Xpress Credit) saw modest growth. Deposit growth was modest, while current account savings account growth remained under pressure.

SBI has guided for overall deposit growth of 10% YoY. The bank has seen an increase in its domestic CD ratio to ~68.9%. Fresh slippages and credit costs were contained, which underscores improvements in underwriting standards.

Restructured book was well under control at 0.34% of advances and the SMA pool was high due to one long-term government sector customer of the bank, with fund-based outstanding of Rs 58 billion.The account has been pulled back subsequently. Excluding this, SMA1&2 remained under control at 9bp of loans.

We cut our earnings estimates by 1.7%/3.4% for FY26/FY27 and expect FY27 RoA/RoE of 1.05%/16.8%. We reiterate Buy with a target price of Rs 925 (1.2x FY27E adjusted book value).

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