Analysts are positive about the country's largest lender State Bank of India (SBI) stock as the bank's asset quality performance has been strong and the outlook remains healthy. The lender has delivered a strong performance in financial year (FY) 2022-23, propelled by steady business or revenue growth and controlled provisions.

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The bank's momentum will remain healthy as utilisation levels improve, while retail growth is likely to remain steady, said analysts. At 12:02 pm, the scrip was trading 0.74 percent lower at Rs 567.05 a share in Monday's afternoon deals. The stock fell nearly 1 percent to hit an intra-day low of Rs 565.9 on NSE as against Friday's closing price of Rs 570.

SBI shares have been lackluster so far in 2023. The scrip has fallen 7 percent on a year-to-date basis, while it jumped 31 percent in the last one year. SBI shares are trading 10 percent lower from its 52-week high of Rs 629.65, hit on December 15, 2022. However, analysts at Motilal Oswal said SBI remains its preferred buy in the financial sector with a target price of Rs 700. This implies a potential upside of 25 percent from the current market levels.

SBI steadily strengthening balance sheet

In SBI's FY23 annual report, the lender highlighted that it is steadily strengthening its balance sheet and consistently delivering healthy return on equity (ROE) while maintaining its leadership position, Motilal said.

The lender continues to focus on building a superior loan book, as evident in a steady decline in stressed assets, improving provision coverage ratio (PCR) and robust loan growth — 17 percent in FY23.

Motilal believes a higher mix of floating loans and CASA (current account savings accounts) mix will support margins even as the cost of deposits picks up at a faster pace.

Asset quality performance has been strong and the outlook remains healthy as restructured book remains in control at 0.8 percent and the SMA (special mention account) pool has declined further to 10 basis point of loans.

"We estimate the credit cost to remain in control at 0.5 percent over FY23-25, enabling a 15 percent earnings CAGR (compound annual growth rate) over FY23-25E. We estimate SBI to deliver sustainable RoA (return on assets) and RoE (return on equity) of 1.0 percent or 18 percent over FY23-25," the note stated.

Treasury performance to improve as bond yields have likely peaked

Analysts believe SBI is well positioned to benefit from the moderation in bond yields on its treasury portfolio as the rate environment has eased over the past few months. The 10-year G-Sec has moderated to 7 percent in the past 12 months from highs of 7.6 percent.

"SBI booked minor treasury losses in FY23 as bond yields were high for most of the year; however, with alternative financial services (AFS) mix of 37 percent, the bank is well positioned to improve its treasury performance in FY24. We, thus, estimate a 12 percent CAGR in other income over FY23-25 (10 percent decline in FY23)," it said.

On the digital front, YONO continued to set new records with 143 million downloads and 60 million registered users, along with average daily logins of 10.3 million. The lender has sanctioned 1.39 million digital loans worth Rs 24,300 crore and opened 64 percent of savings accounts through YONO in FY23.

First Published:Jun 19, 2023 12:38 PM IST