Pros and cons of investing in SBI

Over the last year, shareholders of State Bank of India (SBI) have been disappointed. Despite reasonable quarterly results, the bank’s stock price declined from above ₹1,200 in February to the ₹950 level.

There hasn’t been much of an improvement since.

Much of this was due to the overall negative sentiment in the stock market and FII selling.

But part of it was due to concerns about rising interest rates, which led to a slowdown in growth.

So, what does the future hold for the stock?

In this editorial, we will discuss the pros and cons of investing in the stock of SBI.

Pros

Market position: SBI is the largest public sector bank in India. As a financial institution, it commands the trust of every Indian. Deposits are made in the bank with complete confidence. Over the years, the bank has used the low-cost funds to provide loans to all sections of society.

Government support ensures stability, easy access to capital, and a favourable regulatory environment. This reinforces trust among stakeholders.

The bank has successfully expanded its operations through various subsidiaries, such as SBI General Insurance, SBI Life Insurance, SBI Mutual Fund, and SBI Card. It also maintains a global presence with operations in 29 countries, managed through 241 offices.

Good financials: A look at the company's basic financials indicates solid growth over the years. Over the years, SBI's net interest income (NII) has grown steadily from ₹2.9 trillion in FY22 to ₹5.15 trillion in FY26, a CAGR of 15.4%.

However, in the last two fiscal years, the NII growth has slowed. This is a direct result of slower loan growth due to a slowing economy.

The bank's net profit has grown faster than NII due to a reduction in non-performing assets (i.e., bad loans) and associated provisioning.

This has boosted the bank's net profit margin and return on equity.

The stock market is keenly awaiting the bank’s second-quarter results, expected to be announced on 5 November 2026.

In the first quarter (Q1 FY27), the bank reported decent results. SBI's NII increased to ₹47,000 crore, up 15% year-on-year.

Total revenue rose 6.3% on-uear to ₹1,43,800 crore during the quarter. The bank reported a net profit of ₹12,120 crore in Q1 FY27, up 10.2% on-year.

The gross NPA improved slightly to 1.47%. The same was observed in net NPA, at 0.38%.

SBI is expected to experience steady growth driven by India's robust economic fundamentals. It plans to deepen its presence across India, with a sharper focus on underserved and rural regions.

The bank intends to continue strengthening its branch network and ATM footprint to improve accessibility and financial inclusion.

SBI is also expected to focus on improving asset quality and maintaining profitability despite pressures on net interest margins (NIM).

Its strategic emphasis on rural expansion, infrastructure financing, and international market presence will diversify revenue streams and support sustainable growth.

Cons

Rising interest rates

The Reserve Bank of India (RBI) recently hiked interest rates and has indicated that more hikes are coming.

Higher interest rates put pressure on borrowers to repay loans and also work to discourage new borrowing. This is bad news for any lender, especially big lenders such as SBI, which will feel the brunt of rate hikes.

Loan growth could slow, which in turn would put a lid on NII and net profit growth.

If the market begins to factor in slower future profit growth, SBI's stock price could come under pressure.

Regulatory risk: Regulatory risk is the risk that new laws or rule changes will materially affect a business, sector, or investment by raising operating costs, altering competitiveness, or even undermining a company's business model.

Regulatory violations can attract media attention and reduce customer confidence. A fall in investor confidence usually follows in such cases.

This can be significant in industries such as banking, where trust is important.

SBI enjoys unparalleled trust among Indian savers, but as the largest public sector bank in the country, it is exposed to significant regulatory risk.

About SBI

SBI, a Fortune 500 company headquartered in Mumbai, is India's largest public sector banking and financial services company with an asset base of over ₹61 trillion.

Established via the SBI Act in 1955 after nationalizing the Imperial Bank of India, it consolidated further in 2017 by merging with five associate banks.

RBI has designated it as a domestic systemically important bank (D-SBI). Officially, this means the failure of SBI would result in massive damage to the Indian economy. In common financial language, the designation is considered to mean SBI is 'too big to fail'.

The bank operates in every corner of the country with over 22,500 branches, 63,580 ATMs/ADWMs, and 82,900 business correspondent outlets. It serves more than 500 million customers.

SBI offers a wide range of services—retail banking, corporate banking, investment banking, asset management, and insurance—through its subsidiaries, such as SBI General Insurance and SBI Life Insurance, as well as mutual funds and credit cards through SBI Cards.

On the financial front, SBI plans to enhance profitability through disciplined cost management, optimisation of its asset mix and a greater focus on expanding fee-based income.

Challenges are rising competition from private banks and global economic headwinds that could impact short-term performance.

Investors should evaluate the company's fundamentals, corporate governance, and stock valuations when conducting due diligence before making any investment decision.

Happy investing.

This article is syndicated from Equitymaster.com