Motilal Oswal backs SBI as preferred pick; 7 reasons behind bullish call

Analysts at Motilal Oswal Financial Services (MOFSL) have reaffirmed public sector lender State Bank of India (SBI) as their preferred buy in the sector, with a target price of ₹1,100 per share. The rating follows a meeting with SBI’s senior management, including Chairman CS Setty, DMD Finance Anindya Paul, and CGM Finance Ravi Shankar Akella, where discussions focused on the bank’s business growth, profitability outlook, and other key priorities.

 

The public sector lender, the analysts said, has delivered a strong performance in recent years, supported by steady business and revenue growth alongside well-contained credit costs. The bank expects to outpace industry loan growth, guiding for 13–14 per cent growth in FY26, primarily led by the RAM segment.

 

 

“Margins have largely bottomed out, and the NIM outlook remains unchanged at above 3 per cent, unless the RBI implements additional rate cuts. The 25 basis points rate cut in December 2025 would influence yields for only 30 days, limiting the NIM impact, which can be cushioned by benefits from CRR cuts. Asset quality remains healthy, with tight control on the restructured book,” the analysts noted in their research report.

 

Nitin Aggarwal, Disha Singhal, and Dixit Sankharva—research analysts at MOFSL—expect credit costs to remain benign at 40–50 basis points over FY26–FY28, supporting a roughly 10 per cent earnings CAGR during the same period. Accordingly, they estimate SBI to deliver an RoA/RoE of 1.1 per cent/15.5 per cent in FY27 and 1.1 per cent/15.4 per cent in FY28.

Meanwhile, here are seven reasons why MOFSL called SBI its top pick:

Strong loan growth led by RAM segments

The lender, MOFSL believes, is well-positioned to deliver 13–14 per cent loan growth in FY26, driven by Retail, Agri, and MSME segments, despite a muted corporate capex cycle. As of 2QFY26, SBI reported 13.1 per cent year-on-year advance growth, indicating that full-year guidance is achievable.

 

RAM portfolio and consumption-led growth

According to MOFSL, the RAM portfolio remains SBI’s primary growth driver, now over ₹25 trillion and constituting 56.6 per cent of domestic advances. Retail and personal loans are showing a revival, while corporate lending is selective, focused on renewables, EVs, and technology-linked mobility, supported by resilient consumption demand.

 

Resilient NIMs aided by CRR cuts

SBI’s NIM guidance for FY26, the analysts said, remains above 3 per cent, with the 25 basis points rate cut in December 2025 having limited impact. Structural advantages such as a large CASA base, pricing discipline, and diversified loans support margin stability.

Smooth liquidity transition via calibrated deposit repricing

MOFSL pointed out that SBI’s healthy CASA ratio of 39–40 per cent and domestic credit-deposit ratio below 70 per cent position it well to manage liquidity transitions, with deposit CAGR expected at approximately 10.3 per cent over FY26–28, slightly trailing loan growth.

Strong asset quality and controlled credit costs

SBI’s GNPA/NNPA stood at approximately 1.73 per cent/0.42 per cent in 2QFY26, with credit costs at 39 basis points. Credit costs are expected to remain 40–50 basis points over FY26–28, supported by disciplined underwriting, granular retail exposure, and conservative corporate lending, said MOFSL.

Digital transformation driving productivity

The brokerage further highlighted that the lender’s digital initiatives, including 98.6 per cent alternate channel transactions and 93 million YONO users, enhance productivity, reduce costs, and enable faster credit decisions. This supports stable profitability, with RoA/RoE projected at 1.1 per cent/15.5–17.0 per cent over FY26–28.

Subsidiary value unlocking potential

According to MOFSL, SBI’s subsidiaries in insurance, asset management, and payments add significant valuation support. AMC valuations, in particular, could see upside from increasing financialisation and investor participation, contributing ₹293 to the target price, representing 27 per cent of the total.

  (Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)