State Bank of India sees NIM strength as profitable loan growth supports outlook

Investment View and Target Price

In its November 4, 2026 results update, ICICI Securities retained its BUY rating on State Bank of India after a steady Q2FY27 performance. The broker said the bank’s focus on profitable growth was evident in superior net interest income growth, improving margins and moderating slippages.

ICICI Securities retained its Rs 1,300 target price, implying 34 per cent upside from the Rs 970 CMP. It considered management’s unchanged margin guidance conservative after a strong first half and raised its FY27E and FY28E EPS estimates by 2 per cent and 5 per cent, respectively.

Q2FY27 Financial Performance

State Bank of India reported Q2FY27 profit after tax of Rs 23,038 crore, up 14 per cent YoY. Net interest income grew 14 per cent YoY and 5 per cent QoQ to Rs 49,143 crore, which was 2 per cent above ICICI Securities’ estimate.

Loan growth was 18 per cent YoY and 3.3 per cent QoQ, although ICICI Securities noted that quarterly growth was slower than the system. Domestic advances rose 16.9 per cent YoY, supported by 22 per cent growth in MSME loans and 22.6 per cent growth in agriculture loans.

Retail gold loans rose 90 per cent YoY, while Xpress Credit growth at 7–8 per cent YoY remained soft and below the system average. Corporate loans grew only 1 per cent QoQ as the bank churned low-yielding business.

Deposits, Margins and Management Guidance

Deposits increased 12.3 per cent YoY and 4.5 per cent QoQ, aided by FCNR(B) deposits of US$10.9 billion. Borrowings declined by about Rs 79,000 crore QoQ. Global NIM improved 8 basis points QoQ to 2.94 per cent, while domestic NIM expanded 11 basis points to 3.11 per cent, supported by improved yields and a stable cost of deposits. ICICI Securities identified NII growth and margin expansion as key positives.

Management retained its FY27 guidance for loan growth of 14–15 per cent YoY, domestic NIM of at least 3 per cent, RoA of 1 per cent and RoE of 15 per cent. Corporate-loan growth of 15–16 per cent YoY is expected to be back-ended.

• The bank said it has sufficient liquidity and excess SLR of about Rs 4.8 trillion.
• The liquidity position reduces the need for near-term deposit-rate increases.

Other Income and Operating Performance

Core fee income grew 11 per cent YoY. Treasury income included a Rs 7,290 crore gain from the SBI AMC stake sale, partly offset by a Rs 1,280 crore mark-to-market loss on the bond portfolio. The Rs 2,400 crore gain from the NSE stake sale was credited directly to reserves and did not affect profit and loss.

Operating expenses rose 10 per cent YoY because of front-loaded costs, including PSL-related expenses. Core PPOP fell about 7 per cent QoQ, or about 3 per cent QoQ after adjusting for front-loaded operating expenditure.

Asset Quality and Capital Position

Asset quality improved in Q2FY27, with gross NPA declining to 1.39 per cent and net NPA to 0.36 per cent. Slippages and credit costs moderated to 42 basis points and 25 basis points, respectively. CET-1 improved to 13.34 per cent, aided by the NSE mark-to-market gain.

Management is monitoring agricultural stress and indicated that potential restructuring should remain well below Rs 10,000 crore. The estimated ECL transition impact, excluding the mark-to-market impact on the held-to-maturity book and net of the deferred-tax-asset adjustment and tax, is Rs 19,500 crore. This is equivalent to 3 per cent of net worth and 46 basis points of RWA.

ICICI Securities viewed the ECL transition and agricultural stress as manageable. It identified slower deposit growth as the key risk.

Valuation Framework

ICICI Securities’ SOTP-based target price of Rs 1,300 per share comprises Rs 1,035 per share for the core bank, valued at about 1.5 times FY28E adjusted book value, and Rs 265 per share for subsidiaries after applying a 20 per cent holding-company discount.

The subsidiary valuation includes SBI Life, SBI General Insurance, SBI AMC, SBI Cards and other businesses.