SBI’s Reset Took Years. Markets Took Longer.

For years, State Bank of India was priced for its past, not its progress.

While India’s largest lender quietly repaired its balance sheet, rebuilt profitability and navigated volatile interest-rate cycles with unusual stability, investors remained anchored to memories of the bad-loan era. The numbers suggest the turnaround was real long before the valuation caught up.

Following strong December-quarter earnings, SBI’s market capitalisation rose to around ₹10.9 trillion, briefly overtaking Tata Consultancy Services to become India’s fourth-largest listed company by value. The re-ranking came after years in which operating metrics had already strengthened, underscoring how long the market took to fully price in the reset.

Start with asset quality. In 2020–21, SBI’s gross non-performing asset ratio stood at 4.98%. By 2024–25, it had fallen to 1.82%, and to 1.57% as of December 31. Net NPAs dropped from 1.50% to 0.47%, and further to 0.39%. Provision coverage, including AUCA accounts, rose above 92%.

That is not cyclical improvement. It is a balance-sheet repair.

The cleanup coincided with tighter underwriting and stronger monitoring, leaving SBI entering the current credit cycle with one of the strongest asset-quality profiles among public-sector banks. Yet the stock’s valuation did not move in tandem.

Margins offer the second clue. Between 2020–21 and 2024–25, India moved from rate easing to tightening and then to easing. SBI’s net interest margin barely wavered, hovering around 3% through the cycle and standing at 2.99% in April-December, broadly in line with management’s through-cycle guidance.

That stability came despite a rising deposit rate, which increased from 4.20% to 5.11% over the same period. Yields on advances climbed from 7.97% to 8.98%, preserving spreads. The ability to protect margins in both directions of the rate cycle is typically what investors reward in private-sector lenders. SBI managed it without receiving the same immediate premium.

Profitability tells the clearest story. Return on assets more than doubled, from 0.48% in 2020–21 to 1.16% in the latest nine months. Return on equity rose from 9.94% to 20.68%. Net profit climbed from ₹204 billion to ₹709 billion in four years.

Those are not incremental gains. They mark a structural shift in earnings power.

Yet valuation multiples moved only gradually. The price-to-book ratio rose from 1.51 in 2020–21 to 1.77 in 2024–25, after touching 2.07 in 2023–24. Much of the re-rating occurred after asset quality had already normalised and profitability had already strengthened.

Investors appeared to wait for durability, not improvement.

That caution is understandable. Public sector banks carry legacy perceptions: governance constraints, directed lending risks and capital adequacy pressures. SBI’s capital adequacy under Basel III has remained above 14%, and provision buffers have strengthened. But markets often demand extended proof before revising long-held assumptions.

In SBI’s case, the proof accumulated quietly. Loan growth improved, the loan-deposit ratio rose above 80%, and core profitability strengthened without reliance on one-off treasury gains. The balance sheet looked healthier before the stock price reflected it.

This episode highlights a recurring pattern in large institutions: operational repair precedes narrative change. Markets, especially after a long credit cycle, tend to discount recovery until it survives more than one macro phase.

SBI has now navigated both easing and tightening, reduced non-performing assets by more than two-thirds, and doubled core profitability ratios. That looks less like a rebound and more like a reset.

The lesson for investors is straightforward. Structural change does not announce itself with a re-rating. It compounds in the numbers first. The market adjusts later.