Whalesbook
SBI's Loan Growth Soars as HDFC Bank Leads on Profitability
State Bank of India (SBI) reported a strong 17.2% rise in loans for the March 2026 quarter, reaching ₹48.77 lakh crore. This robust credit growth, boosted by SME (21% growth) and agri loans (19.7% growth), far surpassed HDFC Bank's 12.1% increase in advances during the same period. HDFC Bank grew its loans to ₹29.37 lakh crore, with notable gains in its small and mid-market lending (17.2%) and business banking (20%). Deposit growth also varied, with HDFC Bank up 14.4% to ₹31.05 lakh crore and SBI up 11% to ₹59.75 lakh crore.
Profitability Gap: HDFC Bank's Higher Margins and RoA
While SBI expanded its loan book aggressively, HDFC Bank maintained better profitability. SBI's Net Interest Margin (NIM) for domestic operations fell to 2.93% in Q4 FY26 from 3.14% a year ago. HDFC Bank reported a NIM of 3.53%, a slight drop from 3.7%. This margin difference affected net profit; SBI's profit rose just 5.6% year-on-year to ₹19,683.8 crore, partly due to a 29% fall in 'other income' from investment revaluations. HDFC Bank, however, saw its net profit climb 9% to ₹19,221 crore. For the full fiscal year 2026, HDFC Bank's Return on Assets (RoA) was 1.94%, significantly higher than SBI's 1.12%.
Asset Quality Solid for Both Banks
Both banking giants reported strong asset quality. SBI's net Non-Performing Asset (NPA) ratio improved slightly to 0.39% from 0.47% a year prior. HDFC Bank's net NPA ratio was even lower at 0.38%, down from 0.43%. Declining NPA provisions for both lenders signal stable asset health despite global economic uncertainties. SBI maintained a provision coverage ratio of 74.4%.
Valuation and Sector Outlook
Valuation favors SBI, which trades at a lower Price to Book Value (P/B) of 1.7x compared to HDFC Bank's 2.2x. SBI's P/E ratio is around 11.6, while HDFC Bank's is 16.1. Looking ahead, the Indian banking sector is expected to see credit growth moderate to 12-13% in FY27, with deposits keeping pace. However, Net Interest Margin (NIM) pressures are likely to continue, with a projected 10-15 basis point compression for FY26 before a partial recovery. Geopolitical risks add uncertainty to asset quality and growth. Analysts anticipate PSU banks will continue regaining market share, but large private banks like HDFC are expected to grow stronger in FY27. SBI plans an international fundraising of $2 billion, while HDFC Bank has faced analyst concerns over past issues affecting its valuation perception.
Key Risks and Considerations
For SBI, a key risk is the 29% year-on-year drop in 'other income', including investment revaluation losses, which impacts earnings stability. Relying on non-interest income can be volatile, especially with rising global interest rates. SBI's lower NIM (2.93%) compared to HDFC Bank's (3.53%) suggests less earning power from core lending. HDFC Bank's main challenge is maintaining its NIM advantage amid deposit competition and potential regulatory attention. The bank also holds substantial total debt of about $62 billion.