SBI Margin To Improve Only Post September, Says Chairman — Here's Why | Profit Exclusive

State Bank of India's net interest margin will compress as it plans to pass on the repo rate cut by the central bank to millions of borrowers, Chairman CS Setty said. He added that an improvement is only expected post September.

"The margin trajectory, in my view, should be a U-shaped curve. In a couple of quarters, we see margins getting compressed," Setty told NDTV Profit in an exclusive conversation. "The front-loading of the repo rate cut has accelerated the re-pricing of some of the retail portfolio."

Net interest margin or NIM denotes the difference between the interest income earned and the interest paid by a bank. It is an important factor to gauge profitability.

For India's largest public sector bank, the share of repo-linked loan book is low. "Our portfolio is either fixed-rate or MCLR. But we want to give MCLR reduction to our customers, which means we have to calibrate our deposit rates," Setty said.

Moreover, the SBI Chairman noted that the cut in RBI's cash reserve ratio (CRR) from September onwards will reduce the cost of maintaining the reserve and the ability to deploy those funds.

CRR is a key regulatory requirement that mandates banks to maintain a certain portion of their deposits in the form of liquid cash with the central bank. The RBI last month decided to cut the CRR by 100 basis points to 3% in a phased manner.

This reduction will be carried out in four equal tranches of 25 bps each, with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1 and Nov. 29