State Bank of India growth momentum supported by RAM loans and stable margins

Investment View

ICICI Direct Research’s August 9, 2026 result update maintains a BUY rating on State Bank of India (SBI) with a target price of Rs 1,300, compared with the CMP of Rs 1,097. The broker views SBI as positioned for healthy advances growth, margin resilience, improving fee income, operating efficiency and benign credit costs.

SBI is India’s largest public sector bank, with a balance sheet exceeding Rs 76.6 lakh crore. ICICI Direct also highlights its retail franchise, operating metrics within PSU banking, large subsidiaries and the potential value from its subsidiary portfolio.

Q1FY27 Operating Performance

SBI reported healthy operating performance in Q1FY27. Advances grew 19 per cent year-on-year and 2.3 per cent quarter-on-quarter, driven by 18.2 per cent year-on-year growth in the RAM segment and 21.4 per cent growth in foreign advances. Deposits increased 9.7 per cent year-on-year and 0.5 per cent quarter-on-quarter, as SBI consciously avoided expensive wholesale deposits amid comfortable liquidity and FCNR(B) inflows. The CASA ratio stood at 39.24 per cent.

Margins, Liquidity and Funding

Domestic NIM improved 7 basis points sequentially to 3 per cent, while reported quarterly NIM was 2.86 per cent. Management retained its FY27 domestic NIM guidance of around 3 per cent.

Management expects margins to be supported by lower deposit costs, a better liability mix, disciplined asset pricing, repricing of corporate loans and migration of T-bill-linked corporate loans to MCLR. SBI had mobilised US$6 billion of FCNR(B) deposits, US$1 billion of YFCB and around US$300 million of ECB. Management expects FCNR(B) mobilisation of roughly Rs 1 lakh crore.

Excess SLR was around Rs 3.06 lakh crore at June-end and subsequently rose to around Rs 4 lakh crore, partly aided by FCNR(B) inflows.

Advances Growth Outlook

Management revised FY27 credit-growth guidance to 14-15 per cent from 13-15 per cent earlier. Growth is supported by a corporate pipeline exceeding Rs 9 lakh crore, including undisbursed sanctions, working-capital limits and pipeline opportunities.

Management characterised the 18 per cent Q1 growth as partly a base-effect phenomenon and expects system credit growth of 15-16 per cent. ICICI Direct expects the revised RBI M&A financing framework to support SBI’s medium- to long-term growth trajectory.

Asset Quality and Credit Costs

Asset quality remained resilient, with GNPA at 1.47 per cent and NNPA at 0.38 per cent. The slippage ratio improved to 0.57 per cent from 0.75 per cent in Q1FY26, while credit cost moderated to 27 basis points from 47 basis points.

Q1 fresh slippages were Rs 7,046 crore and were mainly seasonal, including approximately Rs 2,600 crore in agriculture, Rs 2,300 crore in SME and Rs 2,100 crore in personal loans. SBI had already recovered or pulled back around Rs 1,400-1,500 crore of slippages by the concall date.

Provisions rose 6.1 per cent year-on-year to Rs 5,047 crore because of seasonal agricultural slippages and quarterly amortisation of roughly Rs 3,000 crore of annual PLI expense.

Fee Income, Efficiency and Subsidiaries

Management expects fee income to rise from around 15 per cent of total income towards 20 per cent, supported by loan-processing fees, government business, transaction banking and cross-selling.

Cost-to-assets declined to 1.54 per cent from 1.66 per cent in Q1FY26, aided by digitalisation, AI-led sourcing, process simplification and the amortisation of annual costs across quarters.

SBI’s gold loan book exceeded Rs 3.1 lakh crore, including around Rs 1.25 lakh crore of personal gold loans and Rs 1.85 lakh crore of agricultural gold loans. Management also indicated that SBI General Insurance could be the next potential listing candidate after SBI Funds Management, although no timeline was provided.

Earnings Outlook and Valuation

ICICI Direct expects SBI to sustain RoA above 1 per cent. Its Rs 1,300 target price values the standalone bank at around 1.4 times FY28 standalone book value and assigns Rs 271 for subsidiaries.

Key Risks

• Higher-than-expected credit costs, including potential effects from ECL transition.
• Slower-than-expected business growth, which could pressure margins.