Goldman Sachs has downgraded its outlook for the State Bank of India (SBI), reducing its earnings estimates for fiscal years 2025 and 2026 by 3% and 9%, respectively. The brokerage cited a growing risk-reward imbalance due to challenges in maintaining return on assets (RoA).
Goldman Sachs projects that SBI's RoA will dip below 1% by FY26, compared to 1% in FY24. The revised target price for SBI shares suggests a 9% downside from the current trading level of Rs 818.60.
The downgrade stems from concerns about declining net interest income and increased loan loss provisions, with rising credit costs attributed to higher slippages in MSME, agricultural, and unsecured loan portfolios.
Despite the downgrade, SBI’s shares saw a marginal increase of 0.26% on Thursday. Analysts at Axis Securities view SBI as a strong banking sector player, well-aligned with India’s economic growth.
They highlighted SBI’s strategy of boosting deposits and reallocating assets from investments to loans, which is expected to enhance its Loan-to-Deposit Ratio (LDR) and sustain its margin at 3.2% in the medium term.
Axis Securities also praised SBI's healthy Provision Coverage Ratio (PCR) and adequate capitalization, forecasting a RoA of 1-1.1% over the coming years.
InCred Equities remains positive on SBI, maintaining it as a high-conviction stock with a target price of Rs 1,100 per share.
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