2 weeks Ago
State Bank of India Ltd (SBI) is Nomura India's top banking stock idea, as the largest PSU bank is seen delivering well on asset quality, is deemed relatively well-placed amid both tougher deposit conditions and potential rate cuts and is seen performing well in the case of potential tighter draft regulations. The current valuations for the core bank at 1 time FY26 price4-to-book value offer an attractive risk-reward for 16-18 per cent return on equity (RoE), Nomura India said while maintaining its 'Buy' rating and a target price of Rs 980 on the stock. "We find SBI well-positioned on issues that affect the banking sector over the medium-term.
SBI is well-placed to deliver on asset quality given lower exposures to ‘problematic’ segments, and a strong retail underwriting track record, in our view. SBI has the lowest domestic LDR among large banks (with arguably one of the strongest deposit franchises), and hence, faces no imminent supply-led pressures on growth. It is also well-placed on recent draft regulations (LCR, ECL, project loans) affecting the sector, in our view," Nomura India said.
The brokerage said SBI’s higher share of MCLR-linked loans -- where it has raised rates by 20 basis points in H1FY25, holds it in good stead amid potential repo rate cuts going ahead. Nomura India said SBI has lower exposures to unsecured retail – with no meaningful exposures to microfinance and credit cards. SBI’s unsecured personal loans too are predominantly exposed to salaried government employees (83 per cent of Xpress Credit book), and has held up well through cycles.
The outlook for corporate credit quality too remains strong, although some near-term blips are possible, it said. SBI has the lowest domestic LDR among large banks. It also has the highest proportion of MCLR- linked loans, which positions it well amid potential rate cuts.
In potential rate cuts – another rough patch ahead, Nomuta India argues that SBI should see NIM pressures of 12 bps against 15-20 bps for large private banks, from a potential 50bp rate cut. "However, the impact could be even lower if we account for recent MCLR rate hikes taken by (+30bp in 1HFY25), in our view," it said. SBI, Nomura India said, is well-placed for tighter draft LCR norms, aided by a strong LCR cushion (Fig.
4 ). It should also be well-placed on implementation of draft ECL norms, with the management confident of absorbing any potential impact without significant extra provisions. SBI’s 7-year average slippages over FY19-25 is the lowest among large banks, Nomura India said.
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