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Informist, Thursday, Aug. 7, 2025

 

By Kabir Sharma

 

MUMBAI – The mammoth of the Indian banking sector State Bank of India is expected to struggle with muted loan growth and a contraction in the net interest margin which will limit the growth in its net profit for the quarter ended June, according to brokerages tracking the lender. SBI's high cost of funds due to the growth in deposits outpacing growth in advances will also weigh on its bottom line, brokerages said. 

  

The net profit of the largest bank in the country is seen largely unchanged in the June quarter at INR 171.46 billion, compared with the year-ago quarter, according to the average of estimates from 14 brokerage firms. Sequentially, the lender may see a slight dip in its bottom line as the turning of the rate cycle translates to lower margins, leading to lower net interest income. Estimates for the net profit were in the range of INR 143.81 billion to INR 195.76 billion. Kotak Institutional Equities gave the lowest estimate of INR 143.81 billion while Prabhudas Lilladher gave the highest of INR 195.76 billion. 

 

Signs of the quarter being sluggish were evident in the share price of the bank which closed at INR 805.15 per share on Thursday, a mere 0.6% gain over the close on May 2, a day before the bank declared its earnings for the previous quarter which was a Saturday. Shares of the bank have fallen sharply after touching a high of INR 842 in the interim period between last earnings and Tuesday. All but one out of the 22 brokerages which have rated SBI, have a 'buy' rating on the stock. The exception is a 'hold' rating given by one of the brokerages, according to data compiled by Informist. The bank is scheduled to declare its earnings on Friday.

 

As the interest rate cycle turns with the Reserve Bank of India's Monetary Policy Committee delivering a surprise 50-basis-point rate cut at its June meeting, net interest margins across the banking sector are likely to take a hit due to faster repricing of interest rates on loans than on deposits. The bank's domestic net interest margin for the March quarter was 3.15%, unchanged from Oct-Dec but down 32 bps from a year ago. "NII (net interest income) growth will be slower than average loan growth due to a fall in yield on advances outpacing cost of deposits. Consequently, NIM will be lower sequentially," YES Securities said in a note. 

 

The fall in margins is inevitable, even for SBI which has the largest balance sheet, brokerages said. SBI's gross advances had risen 12% on year at the end of March to INR 42.21 trillion while deposits had risen 9% to INR 53.82 trillion. The current accounts-savings accounts ratio inched up to 39.97% from 39.20% at the end of December. The bank's loan book is expected to beat industry due to a robust credit pipeline of INR 3.4 trillion and a conservative CD ratio of 69.7% at the end of March. "...the bank is well-placed to deliver 12-13% credit growth over FY26-27E (2026-27), ahead of systemic trends," Motial Oswal Financial Services said. 

 

 

As a consequence of the correction in margins, the state-owned lender's net interest income is also expected to be dragged down by high cost of funds. The core income of the bank is seen rising just 2% on year to INR 419.28 billion in the quarter ended June, according to estimates from 14 brokerages. Mirroring the sequential fall in net profit, the net interest income, is expected to decline 2% compared with the previous quarter. The net interest income of the bank was at INR 427.75 billion in the March quarter.

 

"Though some margin pressure is expected in a falling rate cycle, improved yield management should help maintain NIMs near current levels," Motilal Oswal Financial Services said in a note. 

 

If not for the sharp rise expected in other income due to higher treasury gains, the bank would have reported a fall in net profit compared with the year-ago quarter, Kotak Institutional equities said in a note. The bank's non-interest income was 40% higher at INR 242.10 billion in the March quarter which took the total income for that quarter to INR 1.44 trillion.

 

A fall in the operating expenses due to seasonality and lower employee cost will also help the bank's bottom line, brokerages said. Operating expenses had grown 17.9% on year to INR 357 billion in the Jan-Mar quarter.  

 

ASSET QUALITY

Provisions of the bank are expected to moderate in the June quarter as the previous quarter had additional provisioning for project linked loans. The normalisation in provisions is likely to give a boost to the bottom line, brokerages said. In Jan-Mar, SBI's provisions had risen four times from a year ago and more than seven times from Oct-Dec to INR 64.42 billion.

 

Slippages, particularly those arising out of the agri book, are expected to be higher in the reporting quarter due to seasonal troubles, brokerages said. The higher bad loan provisions in the previous quarter were driven by an increase in fresh slippages to INR 42.22 billion, while recoveries and upgrades declined to INR 17.39 billion.

 

Despite the rise in slippages, a moderation in provisions is expected to help the bank lower its bad loan ratio, brokerages said. The gross non-performing asset ratio declined to 1.82% as of Mar. 31 from 2.07% at the end of December, with the net bad loan ratio also cooling to 0.47% from 0.53% as of Dec. 31. Slippage ratio of the bank was at 0.55% at end-March while retail personal slippage ratio was at 0.48%. Along with lower slippages "...we are likely to see lower recovery and upgrades as well," Kotak equities said. 

 

Credit cost which reflects the actual financial impact of credit risk by accounting for provisions, write-offs, collection expenses, loan restructuring costs, and interest income loss is also expected to fall in the June quarter, hinting at better asset quality for the bank. Credit cost of the bank was at 0.38% at the end of the previous financial year. 

 

WAY FORWARD

Brokerages see the bank as sufficiently capitalised after the successful closure of the INR 250 billion fundraise in July through a qualified institutional placement of shares. Analysts said the bank's outlook on margins and loan growth along with the deposit growth will be in focus. 

 

The following are the Apr-Jun earnings estimates in INR million for State Bank of India based on reports from 14 brokerage firms in descending order of the estimates of net profit: 

 

Brokerage	Net interest income	Net profit
Prabhudas Lilladher Pvt Ltd	4,25,923.00	1,95,764.00
InCred Research Services Pvt Ltd	4,13,000.00	1,85,000.00
Anand Rathi Share and Stock Brokers Ltd	4,27,562.00	1,82,845.00
Emkay Global Financial Services Ltd	4,23,133.00	1,81,282.00
YES Securities (India) Ltd	4,32,024.00	1,78,470.00
Nirmal Bang Equities Pvt Ltd	4,19,557.00	1,73,046.00
Nuvama Wealth Management Ltd	4,10,600.00	1,71,800.00
Motilal Oswal Financial Services Ltd	4,20,417.00	1,70,101.00
Nomura Equity Research	4,05,200.00	1,70,000.00
JM Financial Institutional Securities Pvt Ltd	4,25,394.00	1,66,944.00
IIFL Capital Services Ltd	4,18,800.00	1,65,300.00
Antique Stock Broking Ltd	4,17,015.00	1,61,103.00
Dolat Capital Market Pvt Ltd	4,18,372.00	1,54,936.00
Kotak Institutional Equities	4,12,884.00	1,43,811.00
Average	4,19,277.21	1,71,457.29

 

End

 

Edited by Akul Nishant Akhoury

 

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