On Monday, Investec reaffirmed its Buy rating on State Bank of India (SBIN:IN), maintaining the INR850.00 price target. The endorsement comes after a detailed analysis of the bank's FY24 annual report, which highlighted several positive developments. The report noted a significant expansion of SBI's YONO digital platform and an increase in digital engagement among customers. Additionally, there was an improvement in Gross Non-Performing Assets (GNPAs) across various segments, with the exception of Personal Loans (PL).
The annual report also identified certain challenges facing the bank, such as the growing Rural Infrastructure Development Fund (RIDF) base, which could potentially affect profitability due to the bank's difficulties in generating Priority Sector Lending (PSL) organically. Furthermore, there has been an uptick in the pension deficit and a slowdown in the momentum of recoveries.
Investec highlighted that State Bank of India's domestic Credit-to-Deposit (CD) ratio is at 68%, which suggests the bank has ample room for credit growth in the range of 13-15% year-over-year. This level of growth is expected to be achievable without the need for additional deposits, which should help maintain the Net Interest Margins (NIMs) at their current levels. Based on these observations, Investec has made only marginal changes to its estimates for the bank.
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