Headwinds to State Bank Of India's peak return on assets ratio, increasing credit costs, and expectations of a lower loan growth have led Goldman Sachs to downgrade the stock's rating to 'sell' from 'neutral' earlier. The stock was down almost 4% at 1:00 pm on Friday.
With factors impacting growth and sustainability of RoA, Goldman expects it to moderate from the peak levels of 1% in the last fiscal to sub-1% in the next fiscal.
"We believe the risk reward profile is turning unfavorable for SBI," the brokerage said. It has also cut the stock's target price to Rs 742 per share from Rs 841 apiece earlier, implying a 9.3% downside.
For the banking sector, Goldman Sachs sees margins to remain under pressure due to tepid deposit growth for State Bank of India, peaking loan-deposit ratio and slowing growth in higher yielding unsecured loans. "We expect NIMs to moderate," it said.
Given the gap in loan growth and deposit growth and the bank continuing to lose market share in deposits over the last four quarters, the brokerage expects lending growth to moderate. It cut its growth assumptions by 100 bps-400 bps over fiscal 2025-2027.
In an exclusive interview with NDTV Profit, SBI Bank Chairman CS Setty, who took over as chairman on Aug. 28, said that the bank will not look at growth at any cost.
“If I compete on deposits, I would compete on the non-rate contest, not the rate war,” he said.
Banks need to focus on product innovation, the new SBI chairman said. It is probably good to focus on creating a new product for customers that combines the benefits of fixed deposits, systematic investment plans and insurance. Such product design innovation within the bounds of regulatory norms is what is needed.
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Shares of the lender fell 4.1% to hit Rs 785.10 apiece, the lowest level since June 5. They were trading 4% lower at Rs 785.75 apiece, as of 1:04 p.m., compared to a 1.15% decline in the NSE Nifty 50.
The stock has risen 22.36% year-to-date and 31.25% in the last 12 months. Total traded volume on the NSE so far in the day stood at 1.96 times its 30-day average. The relative strength index was at 33.82.
Of the 49 analysts tracking the company, 38 maintain a 'buy' rating, six recommend a 'hold' and five suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 16.1%.
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