SBI - Risk-Calibrated Approach To Growth: Nirmal Bang

Nirmal Bang Report

Key Points

1. We hosted the management of State Bank of India, in order to gain insights into the current business outlook. The bank is confident of clocking a healthy double-digit growth, in line with system credit growth for FY24. This growth will be led by continued traction in retail, agriculture and micro small and medium enterprise segments, disbursement of corporate pipeline of Rs 3.5 trillion over the next few quarters and normalisation in international advances growth.

2. SBI has maintained domestic net interest margin guidance at 3.5% for FY24. Despite being in a position to manage its NIM better due to ample liquidity on the balance sheet and higher risk density, it is growing in a risk calibrated manner and is more focused on strengthening structures on ground.

3. It expects to maintain present healthy level of return on asset (1.22% in Q1 FY24), driven by prudent loan book expansion, re-pricing of marginal cost of fund based lending rate loans, higher fee and forex income and effectively managing asset quality. The fee income will be driven by cross selling and forex income; it also intends to shore up its credit linked fee income. As per FY23 annual report, SBI’s fee and forex income as % of average assets was 0.6% as against 1.2- 1.5% in case of its four largest private sector counterparts. Assuming all other financial parameters to be constant, our ‘back of the envelope’ calculations suggest that even if SBI’s proportion of fee and forex income improves by 30-50 bps in the long term, it has scope to improve its RoA to 1.5% plus.

4. We maintain ‘Buy’ rating on SBI with a target price of Rs 698 (valued at 1.1 times June 2025E adjusted book value plus subsidiary value of Rs 183).

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