The recent bonus issue from HDFC Bank has reignited the debate – whether HDFC Bank, the largest private sector bank or State Bank of India (SBI), the largest bank in the country, is the better option for investors on a long-term basis.
The above debate comes at a time when global trade tensions between India and the USA have magnified, and companies in several heavily exporting sectors like textiles, shrimps, and gems and jewellery, amongst others are expected to take a considerable hit in their operations / overseas sales. Investors are also keenly looking at the track record of the two largest banks in India and their ability to manage Non-Performing Assets (NPAs) in difficult times.
On Dalal Street, it appears that HDFC Bank has nudged ahead of its larger rival -– HDFC Bank share price has risen nearly 7 % during this calendar year to close at Rs 953.4 on Friday, while SBI has risen barely 1.2 % to close at Rs 802.4.
A deeper analysis of key operational parameters during the June 2025 quarter and during FY25 would help to gain greater insights for both banks.
A Tale of Two Quarters: Growth vs. Profitability
For a key operational parameter, net interest margin (NIM), for SBI its domestic NIM was 3.02% in the June 2025 quarter vis-a-vis 3.35 % a year earlier. And for HDFC Bank, its NIM was 3.5 % on income earning assets in the June 2025 quarter vis-à-vis 3.7 % a year earlier.
The central bank had cut repo rates in its meeting in early June 2025, and while interest rates on bank loans / credit facilities have come down, interest rates on deposits with the bank come down with a lag.
Meanwhile, SBI’s total advances grew 11.6 % y-o-y to Rs 42.5 lakh crore in the June 2025 quarter led by improved demand conditions for credit from SME sector and retail sector. SBI’s SME loan book was Rs 5.28 lakh crore at the end of the June 2025 quarter, a rise of 19.1 % y-o-y, while its corporate loan book of Rs 12.03 lakh crore, grew by 5.7 % during this quarter.
And for HDFC Bank, the largest private sector bank, its advances grew by nearly 6.7 % y-o-y to Rs 26.28 lakh crore in the first quarter of FY26. HDFC Bank’s small and mid-market loans were Rs 5.52 lakh crore at the end of the June 2025 quarter, a growth of 17.1 % y-o-y, while its corporate and other wholesale loans were Rs 7.08 lakh crore, a growth of 1.7% y-o-y during the quarter.
The asset quality of SBI has been fairly good – its % of net NPAs was 0.47 % in the June 2025 quarter vis-à-vis 0.57 % a year earlier. And for HDFC Bank, its % of net NPAs to net advances was 0.47 % in the June 2025 quarter vis-à-vis 0.39 % a year.
Meanwhile, SBI’s standalone net profit grew nearly 12.5 % y-o-y to Rs 19,160.4 crore in the June 2025 quarter. And HDFC Bank’s standalone net profit rose 12.2 % y-o-y to Rs 18,155 crore in the June 2025.
However, SBI has lagged HDFC Bank on a key operational parameter – for HDFC Bank’s return on assets (average) not annualized was 0.48 % in the June 2025 quarter. On an annualized basis, it would be nearly 1.92 % for the full financial year compared to SBI’s return on average assets (annualized) of 1.14 % in the June 2025 quarter.
FY25 Report Card: A Look at the Long-Term Trend
For SBI, its domestic NIM was 3.22 % during FY 25 vis-à-vis 3.43 % a year earlier. And for HDFC Bank, its NIM was 3.48 % during FY 25 vis-à-vis 3.53 % a year earlier.
Meanwhile, SBI’s total advances grew 12% y-o-y to Rs 42.2 lakh crore during FY25, and it was led by SME loans that grew 16.9 % y-o-y to Rs 5.06 lakh crore. And HDFC Bank’s total advances grew 5.4 % y-o-y to Rs 26.19 lakh crore during FY 25.
The asset quality of both SBI and HDFC Bank has been fairly good – for SBI its net NPA was 0.47 % during FY 25 vis-à-vis 0.57 % a year earlier. For HDFC Bank, it’s % of net NPAs to net advances was 0.43% during FY 25 vis-à-vis 0.33 % a year earlier.
And SBI’s standalone net profit grew 16.1 % y-o-y to Rs 70,901 crore during FY 25. HDFC Bank’s standalone net profit grew 10.7 % y-o-y to Rs 67,347.4 crore during FY 25.
However, SBI has once again lagged HDFC Bank on a key operational parameter – its return on average assets (annualized) was 1.1 % during FY 25. And for HDFC Bank, its return on assets was 1.91 % during FY25.
Value Play or Premium Compounder?
SBI had raised nearly Rs 25,000 crore via its recent QIP. The RBI has taken several steps to boost lending in the banking system. Investors will be closely monitoring SBI, HDFC Bank and other leading banks for their ability to protect their NIMs as well as other operational parameters at a time when there is enhanced global trade tensions and geopolitical risks.
SBI trades at a P/E of nearly 9.5 times estimated standalone FY26 earnings. HDFC Bank trades at a P/E of nearly 20 times estimated standalone FY 26 earnings.
Given the current geopolitical and trade tensions readers in general could adopt a cautious approach before making any investments on a long-term basis.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer and his family have no shareholding in any of the stocks mentioned in the article.
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