Business & Finance
SBI’s Domestic Net Interest Margin Surpasses 3% as Loan Growth Outpaces Deposits
State Bank of India’s domestic net interest margin (NIM) rose 11 basis points sequentially to 3.11% in the September quarter, while its overall NIM increased eight basis points to 2.94%. The improvement was helped by higher yields after the bank deployed surplus FCNR(B) deposits to replace high‑cost liabilities. SBI has reiterated its guidance to keep domestic NIM at 3% or above in FY27, citing improved yields, expectations of a rate hike and a healthy credit growth outlook.
SBI mobilised $10.9 billion in FCNR(B) deposits and raised another $8.83 billion through leverage against these deposits, mainly using the inflows to substitute high‑cost wholesale deposits, according to a report by Motilal Oswal Financial Services. Advances grew 18.2% year‑on‑year and 3.3% sequentially in the September quarter, while deposits increased 12.3% year‑on‑year and 4.5% sequentially. The faster growth in loans than deposits makes deposit mobilisation and funding costs key to sustaining margins. The bank’s domestic credit‑deposit ratio fell to 73%, giving room for further loan growth. Its global credit‑deposit ratio eased to 82.1% from 83.1% in the previous quarter, aided by FCNR(B) inflows.
SBI has maintained its FY27 credit‑growth guidance at 14‑15%, supported by strong first‑half growth and expectations of stronger disbursements in the second half. Retail advances grew 14.5% year‑on‑year, agriculture and SME advances expanded 22.6% and 22% respectively, and corporate advances increased 16.1%. Within retail, gold loans grew 89.3% year‑on‑year.
The CASA ratio declined 92 basis points sequentially to 38.3%. About 32% of the loan portfolio is linked to the external benchmark lending rate (EBLR), 27% to the marginal cost of funds‑based lending rate (MCLR), 17% to Treasury bill rates and 21% carries fixed rates.
SBI reported net interest income of Rs 49,140 crore, up 14.3% year‑on‑year and 4.6% sequentially. Other income, excluding the NSE divestment, fell 23.2% year‑on‑year to Rs 11,780 crore, partly due to treasury losses of Rs 1,280 crore against gains of Rs 4,320 crore in the previous quarter. Operating expenses rose 9.6% year‑on‑year to Rs 33,980 crore, partly reflecting front‑loaded expenditure of around Rs 850 crore on IT services, vendor payments and MAP‑related payments. Consequently, reported pre‑provision operating profit declined 1.4% year‑on‑year to Rs 26,940 crore, although core pre‑provision operating profit grew 16%. Net profit increased 14.3% year‑on‑year to Rs 23,040 crore, supported by healthy net interest income and a one‑off gain of Rs 7,300 crore from the divestment of SBI Mutual Fund shares.
Asset quality remained strong, with fresh slippages falling to Rs 5,230 crore from Rs 7,050 crore in the June quarter. Gross and net non‑performing asset ratios improved sequentially by eight and two basis points to 1.39% and 0.36% respectively. The provision coverage ratio stayed largely stable at 74.4%, while credit costs stood at 0.22%.
SBI’s ability to keep domestic NIM above 3% will depend on maintaining the benefit from replacing expensive wholesale deposits alongside its targeted credit expansion. Management remains confident of sustaining the 3% threshold in FY27, backed by improving yields and expectations of healthy credit growth.