State Bank of India (SBI) is poised for steady growth under its new leadership, with a projected 12-13% loan growth CAGR through FY25-27. The bank is positioned to outperform the broader market, driven by its high-quality loan portfolio, robust asset quality, and efficient operations, according to an analyst report by Motilal Oswal Financial Services.

"With a strong credit pipeline of Rs 6 lakh crore, SBIN is well-positioned to expand its corporate loan book, targeting 14-15% growth. This growth is expected to outpace systemic credit growth, allowing the bank to gain a healthy market share under the leadership of C S Setty," the report said.

SBI's earnings trajectory is expected to maintain its upward momentum, with a projected 12% earnings CAGR from FY24 to FY27. The bank’s strong performance in FY24, with a PAT surpassing INR600 billion, reflects a solid foundation supported by healthy credit growth, stable margins, and controlled credit costs. For FY25, SBI is expected to report INR711 billion in PAT, continuing its growth from the previous year.

A key highlight is SBI’s well-diversified loan portfolio, with particular strength in the retail, SME, and corporate segments. The bank’s retail business, while growing at a moderate pace, continues to see healthy traction in secured credit. The wholesale segment is showing significant recovery, with a strong demand for loans and higher utilization rates.

Asset quality and credit growth

SBI’s asset quality remains a strong suit, with GNPA/NNPA ratios of 2.13% and 0.53%, respectively, as of Q2FY25. The bank’s robust underwriting practices, along with its focus on secured loans, are expected to help maintain stable asset quality in the coming years. The bank’s credit costs are anticipated to remain under control at 45-50 basis points, ensuring consistent profitability.

SBI’s loan growth is expected to be largely driven by a healthy demand for corporate loans, with an estimated 14-15% growth in the segment over FY25-27. This growth will be supported by the bank’s strong credit pipeline, with a focus on increasing market share in corporate lending.

SBI’s net interest margin (NIM) stood at 3.14% in Q2FY25, and the bank’s margins are expected to remain broadly stable, aided by factors such as the low domestic credit-to-deposit (CD) ratio and MCLR-linked loan portfolio. The bank is well-positioned to withstand rate cuts due to its large MCLR-linked loan book, which shields it from the full impact of lower interest rates.

On the operational front, SBI is focusing on improving efficiency through digital transformation and cost-containment measures. The bank has reduced its operating expenses by 11% YoY in Q2FY25, and it is targeting a reduction in the cost-to-income ratio to 49% by FY27.

SBI's robust financial position and strategic direction under the new chairman are expected to continue delivering strong results. The leadership transition comes at a time when the bank’s fundamentals are strong, with a healthy deposit base and well-managed loan portfolio, it said.

With a focus on operational efficiency, digitalization, and granular retail deposits, SBI remains well-positioned to navigate through challenging macroeconomic conditions while capitalizing on growth opportunities in the banking sector.