SBI expected to report tepid Q1 earnings on net interest margin pressure
The bank is scheduled to declare results on Friday.
SBI's net profit in the June quarter was pegged at ₹16,975 crore, according to Bloomberg consensus estimates of 24 analysts. The lender earned ₹17,035 crore in Q1 of FY25.
'We expect operating profit to decline around 8% YoY (year-on-year) as we build NIM compression in the first quarter of FY26," Kotak Institutional Equities said in a report on 6 July. 'We are building flat NII (net interest income) decline despite 11% YoY loan growth due to higher cost of funds and pass-through of recent rate cuts. Lower staff costs and higher contribution from treasury income are supporting operating income."
According to Motilal Oswal, public sector banks including SBI are likely to report modest year-on-year profit growth in the June quarter, driven by lower margins and a rise in provisions. Like its peers, SBI's NII is expected to remain little changed, while treasury gains could perform better due to the sharp drop in the G-Sec yield during the quarter.
The bank's asset quality is expected to be stable, supported by contained slippages and a healthy provision coverage ratio. In Q4 of FY25, SBI's gross non-performing asset ratio — aggregate bad loans as a percentage of total advances — stood at 1.82%, 42 basis points lower than a year earlier.
Loan growth
Analysts expect tepid loan growth at the state-owned lender. Sequential loan growth is estimated at below 2.5%, according to a Yes Securities report on 4 July. Compared to private peers, public sector banks including SBI may fare better on earnings, supported by relatively stable margins and lower provisions, following the additional buffers built in Q4 FY25, Yes Securities said.
Loan growth at public sector Punjab National Bank and Bank of Baroda stood at 9.6% and 12.4% y-o-y, respectively, in the June quarter.
Large private lenders HDFC Bank and ICICI Bank posted sluggish loan growth and narrowing margins in the June quarter, reflecting growing pressure on profitability, following the Reserve Bank of India's recent repo rate cuts. Both lenders recorded a decline in NIM in Q1 as borrowing rates adjusted faster than deposit rates after the rate cut.
SBI will be able to maintain return on assets at 1%, chairman C S Shetty said on a call with analysts on 3 May. He said the outlook for NIM would depend on the pace and depth of future rate cuts.
Shetty said that the adjustment in loans linked to the marginal cost of funds-based lending rate — an internal benchmark — would require a drop in the incremental cost of deposits.
'We will ensure that the readjustment of interest rates and the deposits are aligned at least broadly, with the reported cards, so that the margin protection is there," Shetty said.
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