State Bank of India

Investment case

Cheapest large bank; funding moat

Why this business

India's largest bank: ₹50 lakh crore of loans, ₹60 lakh crore of deposits, 23,000 branches, a 22–23% share of system deposits and a 39% CASA ratio no private bank can match. Since the 2016–19 asset-quality review it has rebuilt from a ₹6,500 crore loss (FY18) to an ₹80,000 crore profit (FY26), with net NPA down from 5.7% at the FY18 peak to 0.4%. Listed subsidiaries — SBI Life, SBI Cards, SBI Funds (AMC), SBI General, SBI Caps — are worth ~₹240 a share today (₹270 on a Sep-2027 basis) after a 20% holding-company discount.

What we believe

1. 01Cheapest large bank in India: 1.25x core (ex-subsidiaries) book for a 15–16% ROE, against our 1.5x fair P/B; base-case target ₹1,292 (+28%), probability-weighted ₹1,262 (+25%), BUY.
2. 02Funding is the moat: 39% CASA, the lowest cost of deposits among large banks, ₹3 lakh crore of excess SLR and a domestic loan-to-deposit ratio of 74% — SBI can grow loans 15% for three years without chasing deposits, which no private bank can say.
3. 03Asset quality has structurally reset: retail is 35% of the book, led by salaried/government employees (the 'Xpress credit' franchise) and the largest home-loan book in the country; GNPA 1.47%, PCR 74%, credit cost 40 bp — we model it rising to 60 bp and the stock is still cheap.
4. 04Capital is adequate and self-funded: CET1 12.9% after the FY26 QIP; a ~15.8% ROE on an 11% normalised CET1 base funds 13–14% growth internally and still pays ₹18+ of dividend.
5. 05House history: the house entered SBI in 2017 because retail delinquencies were better than perceived; the July file shows it at 4.0% as a Core holding. Our three-page note (Section B) sets out the full model.

Why now

See sector chapter and catalysts.

Market disagreement

• Bank of Baroda / Canara / PNB: Cheaper on paper (0.9–1.0x book) but with 32–35% CASA, thinner capital, weaker retail franchises and 12–13% ROEs that depend on treasury gains — SBI's premium is the price of the only PSU balance sheet that came through the AQR with a better retail book than most private banks.
• HDFC Bank: We own both. HDFC Bank's ROA is 1.8% vs SBI's 1.1%, so it deserves its 1.6x to SBI's 1.25x; SBI's advantage is CASA, excess liquidity and subsidiaries.
• Kotak Mahindra: Kotak's 12% ROE at 2.0x core book versus SBI's 15% at 1.25x — the same ROE arithmetic the house has always used, and it points to SBI.

Position sizing

Core Large cap  4.0% of the PMS on $31 Jul 2026 (August rank 3). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts

• 2QFY27 (Nov-26): domestic NIM holding at 3%+ and loan growth at the 14–15% guidance.
• Subsidiary value events: SBI Funds IPO, SBI General stake sale, further YES Bank/other stake monetisation.
• FPI flows returning to Indian financials; SBI is the most liquid large-cap bank under-owned by foreigners.

Risks and response

• Government ownership (~55%): directed lending, dividend policy and management tenure are policy variables; the ROA ceiling (~1.1%) is structurally below private peers.
• NIM: a 2.6–2.7% margin (model basis) is thin; a 20 bp compression on further rate cuts before deposits reprice cuts FY27E EPS ~10%.
• Corporate cycle: SBI's corporate book (28% of loans, plus 15% international) is the system's largest; a credit-cost reversion to 80–100 bp would take ROE to 12%.

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p29) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: Core

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p29. Internal; external publication of these fields is controlled by audience policy.