What should investors do about SBI after Q1 FY27 results?

We had recommended investors to buy the stock of India’s largest bank, State Bank of India (SBI), when the stock was trading at ₹805 last August. Since then, the stock has given returns of about 30 per cent. Compared with Q1 FY26 (latest quarter when we gave our last call), business has gathered momentum from the second half of FY26, and the net interest margin (NIM) is expected to be stable going forward, now that the bank has largely gone through a full cycle of interest rate transmission.

The stock now trades at a price-to-book value multiple of 1.6x on a consolidated basis. Based on our sum-of-the-parts (SOTP) valuation, which uses trailing metrics, there is not a lot of hidden value to be discovered. However, stock appreciation can follow book value accretion which in turn chiefly depends on earnings growth. With the management guiding for a credit growth of 14-15 per cent, NIM of 3 per cent and an RoA (return on assets) of 1 per cent for FY27, in our view, the 1.5x multiple assigned to the standalone banking business seems justified. Hence, investors holding the stock can continue to do so.

Retail, agri, SME, corporate and overseas advances make 35, 9, 13, 28 and 15 per cent of SBI’s loan book respectively.

Back in Q1 FY26, SBI’s loan book grew at an ordinary 11.6 per cent, broadly in alignment with the slowing system level growth of 9.5 per cent. Within the loan book, corporate advances were a laggard which grew a mere 5.7 per cent. However, with GST rate rationalisation, tables turned in the second half of FY26. Credit demand picked up and SBI posted a loan growth of 16.9 per cent for FY26. The momentum continued in Q1 FY27 as well, with a credit growth of 18.6 per cent (on a low base of Q1 FY26) and deposits growing by 9.7 per cent. Both the loan book and deposit book reached respective milestones of ₹50 lakh crore and ₹60 lakh crore. Though deposit growth trailed loan growth, SBI’s surplus SLR (statutory liquidity ratio) reserves of about ₹4 lakh crore (as of Q1 FY27) enable higher credit growth.

Corporate advances growth recovered to 14.8 per cent in FY26 and 18 per cent in Q1 FY27. In the latter half of FY26, the bank had started offering corporate loans whose interest rates were based on T-bill yields rather than the typical MCLR-based (marginal cost of lending rate – based on the bank’s cost of funds) loans. These found traction with corporates who had moved on to the bond market from banks to take advantage of better yields there. However, as the move proved unfavourable, the bank has now fallen back to negotiating such loans disbursed, back to being priced on MCLR basis. This meant the corporate book remained flat as of Q1 FY27 vs Q4 FY26, as some corporates have moved on to alternatives. Management has indicated that in most cases, the renegotiation has been completed while for the rest, it is work in progress. When this is done, it could improve margin. For growth though, the bank is upbeat about good corporate credit demand particularly in segments such as data centres, energy storage and M&A deals. It has a sanction pipeline of ₹9 lakh crore. Investors need to watch this segment, going ahead.

SBI’s personal loan product (7.4 per cent of loan book) was another laggard that we had pointed out in our last call. It had remained flat in Q1 FY26 as it had in FY25. However, it has found traction now, growing 7.4 per cent in FY26 and 8.3 per cent in Q1 FY26. SBI plans to set up a 6,000-strong ‘feet on the street’ collection mechanism to expand the product beyond its largely salaried customer base to target self-employed individuals and professionals.

SBI’s standalone net profit grew 12.9 per cent in FY26 to a record high of ₹80,032 crore. Profit before tax excluding the Yes Bank stake sale grew 5.9 per cent. Cost-to-income ratio improved to 50.1 per cent for FY26 versus 51.6 per cent for FY25. However, as the bank transmitted multiple rate cuts to borrowers and depositors, NIM (for domestic business; domestic business accounts for 85 per cent of gross advances) declined to 3 per cent for FY26 from 3.2 per cent for FY25 — primarily the cause for modest profit growth. Standalone RoE and RoA came in at a strong 18.6 per cent and 1.1 per cent respectively for FY26. Consolidated earnings grew 7.4 per cent.

In Q1 FY27, NIM remained stable at 3 per cent and the standalone bank reported a profit growth of 10.2 per cent. Annualised RoE and RoA stood at 17.8 per cent and 1.1 per cent. Consolidated earnings grew 13.7 per cent.

Asset quality is at the best level in two decades. Gross NPA and net NPA ratios are at 1.47 per cent and 0.38 per cent, respectively. Credit cost and slippage ratio at 0.27 per cent (0.37 per cent in FY26) and 0.57 per cent (0.54 per cent in FY26) do not indicate asset quality pressures. The bank also has ₹29,713 crore of standard asset provisions (as of FY26) amounting to 0.6 per cent of gross advances, as a buffer. Liquidity coverage ratio (amount of highly liquid assets maintained to meet cash outflows during a 30-day stress scenario) is adequate at 126 per cent and capital adequacy ratio stands at a healthy 15.6 per cent, boosted by the recent ₹25,000-crore QIP, the Yes Bank stake sale and the SBI Funds Management IPO.

Management has guided for a credit growth of 14-15 per cent for FY27, slightly up from 13-15 per cent as guided at the end of FY26. NIM and RoA (standalone) are expected to be maintained at 3 per cent and 1 per cent respectively, for the current fiscal. Credit cost is likely to be at 0.5 per cent. Management is expected to give an outlook on the impact of the upcoming (from FY28) expected credit loss framework for recognising bad loan provisions in the earnings call for Q2 FY27. This should be a key monitorable for investors.

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