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Nuvama has reiterated its Buy rating on State Bank of India (SBI) and raised its target price to ₹1,250 from ₹1,150 after the bank delivered what the brokerage described as the strongest core performance among large banks in Q3FY26.

Nuvama highlighted that SBI reported robust operating momentum, with loan growth of 6% QoQ, net interest income growth of 5% QoQ, and lower-than-expected operating expenses, driving core earnings strength for the third consecutive quarter versus private sector peers. Reported PAT was 10% higher than consensus, aided by a ₹22 billion special dividend from SBI AMC and ₹7.7 billion of interest income on tax refunds.

Reported NIM edged up 2 basis points QoQ to 2.99%, although core NIM excluding tax refund income declined marginally by 1 bp QoQ. Return on assets stood at a healthy 1.2%, reinforcing SBI’s improving profitability profile. Given the strength in trends, SBI revised its FY26 loan growth guidance upward to 13–15% from 12–14% and expects NIM to remain above 3% in Q4FY26.

Loan growth, opex control drive earnings beat

Loan growth was broad-based, with overall advances rising 6% QoQ and 15% YoY, led by strong traction in domestic portfolios. Domestic loans grew 7% QoQ, while overseas loans rose 2% QoQ. Within domestic lending, corporate loans expanded 8% QoQ, SME loans surged 11% QoQ, agriculture grew 7% QoQ, and retail loans rose 4% QoQ.

In the retail book, housing loans grew 3% QoQ, auto loans 6% QoQ, and gold loans surged 18% QoQ, with gold loan growth at 96% YoY. Nuvama noted that the low loan-to-value ratio of 51% in retail gold loans leaves room for further expansion, even as some personal loan demand shifted toward gold-backed borrowing. SME loan growth of 21% YoY was partly supported by auto dealer financing linked to GST- activity, which may normalise in Q4.

Deposit growth remained modest at 2% QoQ and 9% YoY, with current account balances declining 4% QoQ but rising 10% YoY, remaining higher than the sector. Savings account deposits grew 2% QoQ. The domestic loan-to-deposit ratio rose to 73% from 70%, while liquidity coverage remained healthy at 125%.

Calculated cost of deposits declined 9 bps QoQ, while loan yields fell 13 bps QoQ, resulting in broadly stable margins. Importantly, total operating expenses declined 1% QoQ, coming in 4% below consensus, driven by a sharp reduction in employee- actuarial provisions. Core PPOP rose 21% QoQ and 31% YoY, underscoring strong operating leverage.

Asset quality remains robust

Asset quality metrics remained stable, with slippages at a low 0.5% of lagged loans. Gross NPL declined 3% QoQ to 1.57%, while the provision coverage ratio stayed strong at 75.5%. Credit costs moderated to 29 bps, down from 39 bps in the previous quarter, supported by recoveries and controlled slippage formation. Capital adequacy remained comfortable, with CET1 at 12.57% and low RWA density.

Given SBI’s sustained earnings outperformance, improving guidance and stable asset quality, Nuvama revised its valuation multiple to 1.8x FY27E book value from 1.5x earlier, reiterating SBI as its top buy within the banking sector.

Disclaimer: The views and recommendations above are those of Nuvama. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.