SBI to maintain net interest margin at 3.2-3.4%, keep an eye on deposit costs

Mumbai: State Bank of India (SBI) is focused on maintaining its net interest margin (NIM) in the range of 3.2-3.4% for FY25, according to chairman Dinesh Kumar Khara.

As of 30 June, the state-run lender’s global NIM was 3.22%, and its domestic NIM was 3.35%.

Repricing has largely been in term deposits with fixed deposits of one-two years being the biggest component. The bank has already raised rates twice so far this year. This gives the bank some “elbow room” to hike its marginal cost of funds-based lending rates (MCLR), which should help support margins, Khara said at SBI’s first quarter earnings meet.

The bank hiked MCLR rates twice by 10-15 bps each across various buckets in June and July.

Khara likened the current deposit crunch in the banking sector to the 2010-11 period when deposit growth outpaced credit growth. He said the pressure on deposit accretion is transitory. 

SBI remains watchful of the rise in the cost of deposits and ensures it maintains an optimal balance while raising rates, he added.

“Deposit growth is one aspect, but at what rate are we growing the deposits, in terms of cost of deposit…we have to be very mindful,” he said.

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Cost of deposits for the bank grew 45 basis points (bps) on year, whereas NIM fell by only 12 bps. SBI is currently sitting on excess statutory liquidity ratio (SLR) of about ₹3.7 trillion which should help the bank navigate the deposit slowdown.

In addition, it is also looking at alternative sources of funding such as infrastructure bonds where it has raised ₹20,000 and certificates of deposits (CDs) through which it has raised ₹50,000 crore so far at “comfortable rates”.

SBI’s CASA ratio was at 40% of pre-covid level but rose to around 45% during the pandemic and has now normalized. As of 30 June, CASA ratio was 40.7%, with Khara saying that the bank should be able to maintain the ratio within 10-15 bps of the current level. Total deposits were up 8.2% on year but fell 0.3% on quarter to ₹49 trillion as of June 30.

Jump in provisions

SBI posted a muted 0.9% growth in its net profit for Q1FY25 due to margin compression, higher loan loss provisions and a fall in other income.

Slippages for the quarter were ₹7,903 crore, of which ₹2,500 crore were from the agriculture book, attributed to seasonal factors. Another ₹3,000 crore slippages were from personal and home loans, which the bank said were on account of a hit on recoveries due to delayed salaries to government employees by several state governments during the quarter.

Further, ₹2,200 crore slippages were from SME loans and ₹200 crore from small corporate loans. SBI said that of these slippages, it has already recovered ₹1,600 crore since 30 June.

The slippage ratio was 41 bps higher sequentially but 10 bps lower on year at 0.84%, which shows there is no challenge as far as the bank’s asset quality is concerned, Khara said.

Total provisions for the quarter were ₹9,413 crore, higher by 11.9% on year and 17% on quarter, which in part were due to a rise in ageing provisions for standard assets. Loan loss provisions were up 70.4% on year and 37.2% on quarter at ₹4,518 crore.

Loan growth

Total advances for the public sector lender rose 15.4% year-on- year and 1.2% sequentially at ₹38 trillion. Khara said the bank is seeing strong opportunity in the MSME segment where it has grown 20% for the past two quarters. It is also seeing good traction in the mid-corporate segment. 

The bank said it has recalibrated growth in some segments of unsecured and retail loans owing to higher risk weights introduced by the Reserve Bank of India (RBI) in November 2023.

The bank has a corporate loan pipeline of ₹4.62 trillion, a bulk of which is skewed towards the private sector. Pending sanctions are at around ₹2.26 trillion and pending disbursements at ₹2.36 trillion. Corporates are also borrowing heavily from the market, which is another area where the bank is tapping, especially following the new investment guidelines, Khara said.

“We are very mindful of the YoA (yield on advances) in each of the segment. Whereever we are in a position to make a decent amount of money, we have a focus. When it comes to a trade-off, we look at our YoA in different buckets and portfolios,” he said. 

Khara added that the bank’s current capital adequacy at 13.9% is sufficient to fund incremental loan growth of ₹6.5-7.0 trillion.

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