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.
With growing headwinds to the 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.
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Shares of the lender fell over 2%, the lowest level since Aug. 14. They were trading 1.9% lower at Rs 803.4 apiece, as of 9:47 a.m., compared to a 0.5% decline in the NSE Nifty 50.
The stock has risen 25.22% year-to-date and 34.35% in the last 12 months. Total traded volume on the NSE so far in the day stood at 0.46 times its 30-day average. The relative strength index was at 40.21.
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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