MUMBAI
:
State Bank of India (SBI), the country’s largest bank, has delivered a muted performance in fiscal year 2024-25. Margin pressure due to rising deposit costs has been a drag on the bank’s profitability, even as credit growth has remained strong and asset quality has improved.
The March quarter is likely to follow the same trend, owing to lower treasury income and further margin decline.
Here are the key things to watch for in SBI’s fourth quarter results on 3 May.
Net interest margin
Margins for the banking sector overall are under pressure due to the slower rate cut transmission to deposit rates compared to lending rates. SBI is expected to report a 30% decline in operating profit due to margin compression, lower treasury income, and recovery from written-off loans, said Kotak Institutional Equities in 7 April report.
“We are building 2% year-on-year net interest income (NII) decline despite 12% on-year loan growth due to higher cost of funds and pass-through of recent rate cuts. Lower staff costs (base year had several one-offs) are aiding operating income growth,” said the report.
With the Reserve Bank of India (RBI) announcing additional open market operations (OMO) to infuse liquidity, along with the dividend transfer later this month, analysts expect liquidity to be in surplus of ₹5 trillion by the end of June. The availability of excess liquidity will help banks cut deposit rates and improve their margins.
Loan growth
While the banking system’s overall credit growth slowed to 12% in 2024-25, SBI will stand out as an outlier. The bank is expected to post a strong loan growth of 13-14% on-year, driven by growth in retail and small business loans.
SBI is also likely to see strong credit demand from the corporate loan segment, which already has a strong pipeline of ₹6 trillion. Its peers, ICICI Bank and HDFC Bank, had seen a decline in corporate loan growth in the quarter.
Asset quality
While SBI’s asset quality is likely to remain stable in the fourth quarter, the market will watch the management commentary on the Supreme Court judgement in the Bhushan Steel case. The apex court on 2 May ordered the liquidation of Bhushan Power & Steel Ltd (BPSL), rejecting the ₹19,700-crore resolution plan submitted by JSW Steel. The order is likely to have implications for SBI’s asset quality, being the largest lender to the steel company.
Analysts will watch how the bank will proceed to unwind the recoveries already made. “We expect slippages at ~1% of loans (normalisation of slippages over time), but no fresh concerns are likely on unsecured loans for the bank. We are likely to see lower recovery and upgrades as well,” said the Kotak Institutional Equities report.
