State Bank of India's consolidated fourth-quarter earnings grew by 21% and full-year 2015 earnings by 20%, ahead of our 19% estimate. Higher-than-anticipated growth in non-interest income and better cost management aided profitability. These two factors are important but the modest beats are not enough to move our fair value estimate of INR 315 per share, making the stock fairly valued at current prices.
Non-interest income growth of 30% in the prior year was led by fee income generated from a higher number of card transactions. The bank's tie-ups with online retailers aided this growth. The cost-to-income ratio for 2015 was 59.5%, marginally better than our 59.8% estimate. We maintain our outlook on cost-to-income of 58.5% for the coming five years, as the bank continues to grow its branch presence (albeit by just 3% during the past year) while continuing to pursue digital initiatives to reduce costs and move customers to transact on technology-enabled platforms. State Bank of India has the highest number of branches among Indian banks, with a total of 16,333 branches as of March 2015.
Loan book growth was muted at 7.2% as the bank grew slower than system loan growth of 10.5%, given its reliance on borrowings by large corporates, especially in the infrastructure space, which are experiencing regulatory roadblocks before undertaking capital expenditure. Management has guided for loan growth of 13% to 14% in 2016 as it anticipates most issues being resolved in this sector over the coming six months. We believe this number is achievable if the investment cycle kicks back in, and continue to project average loan growth of 12.4% for the coming five years at the bank. As far as loan underwriting is concerned, net charge-offs were 1.5% of all loans, similar to last year. Gross non-performing loans declined by 8%, as a result of write-offs and restructuring. Overall, we believe the bank is a standard allocator of shareholder capital.
