On Wednesday, Nomura/Instinet maintained a positive outlook on State Bank of India (SBIN:IN) stock, reiterating a Buy rating with a price target of INR980.00. The firm's analysis highlighted State Bank of India's advantageous position in dealing with medium-term sector challenges.
The bank is anticipated to maintain strong asset quality, attributed to its minimal exposure to high-risk segments and a robust track record in retail underwriting.
The bank's low domestic Loan-to-Deposit Ratio (LDR) compared to other large banks, combined with a strong deposit base, suggests it is not likely to face immediate growth constraints due to supply issues. Furthermore, State Bank of India is expected to navigate recent draft regulations affecting the banking sector effectively, including those pertaining to Liquidity Coverage Ratio (LCR), Expected Credit Loss (ECL), and project loans.
State Bank of India's increased proportion of Marginal Cost of funds-based Lending Rate (MCLR)-linked loans, which have seen a significant rate hike of 30 basis points in the first half of the fiscal year 2025, positions the bank favorably in the event of potential repo rate reductions.
The current valuation of the core bank at 1 times the forecasted Price-to-Book Value (P/BV) for FY26, which translates to 6.7 times the Price-to-Earnings (P/E) ratio, is deemed attractive. These valuations support expectations of 16-18% Returns on Equity (RoEs) and 14-15% loan growth over the fiscal years 2025 to 2027.
State Bank of India continues to be a top pick for Nomura/Instinet, as the bank's fundamentals and strategic positioning promise resilience and growth in a dynamic banking landscape.
In other recent news, State Bank of India has been downgraded from Neutral to Sell by Goldman Sachs due to concerns over the bank's future performance. The investment firm has revised the price target to INR742.00, reflecting anticipated challenges including a decline in return on assets (ROA), slower loan growth, and increasing credit costs.
Goldman Sachs predicts a decline in ROA from 1% in FY24 to less than 1% in FY26E, and an increase in credit costs due to rising slippages in the MSME, agriculture, and unsecured loan portfolios. The firm's reassessment also includes a reduction in the forecasted earnings per share (EPS) for FY25-27 by 3-9%.
Despite these challenges, recent developments show that State Bank of India maintains a positive financial outlook for FY24. The bank has marked its sixth consecutive year of ROA expansion, reaching 1.04%, and has kept its provisions low, averaging around 8 basis points.
Strategic initiatives have been launched across various loan verticals, including partnerships with builders and automotive manufacturers, increased loan limits for pre-approved personal loans, and technology updates to expedite loan processing. Furthermore, the bank has made significant advancements in its IT infrastructure, enhancing operations and service delivery.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.