SBI Q4 Preview: Strong Loan Growth, But NIM Likely Under Pressure

State Bank of India is expected to report a mixed bag of numbers for the quarter ended March, led by robust loan growth, higher credit costs and a compression in net interest margins, according to brokerages.

India's largest lender is set to disclose its March quarter earnings on Saturday. According to a poll by Bloomberg, SBI is likely to report standalone profit after tax of Rs 17,989 crore, down by 13% on the year. The bank's bottom line was Rs 16,891 crore a quarter ago.

Analysts expect a mix of positive loan growth trends, seasonal fee income boosts, and the challenge of managing funding costs in a rising interest rate environment.

"We expect strong loan growth of 13-14% YoY, largely supported by growth in retail and SME (small and medium enterprises) segments. We expect NIM to be lower (down 3-5 bps QoQ), impacted by sticky funding costs and turning rate tables," Elara Securities said in a preview note.

The bank's loan growth remains healthy, driven by strong credit demand in the corporate segment, while retail and SME segments continue to provide steady support, brokerage Deven Choksey Research said in a note.

Sequentially, loan growth is expected to be in the ballpark of 4%. However, NII growth is likely to be slower than loan growth, mainly due to the fall in yield on advances that is outpacing the cost of deposits, YES Securities said.

State Bank Of India Q4 FY25 Estimates (Standalone, YoY)

• Net Profit seen down by 13% at Rs 17,989 crore.

• NII seen rising nearly 4% to Rs 43,405 crore.

• NIM seen down by 56 basis points YoY, 24 basis points QoQ at 2.91%.

Despite strong loan growth, Kotak Institutional Equities expects the bank's net interest income to decline 2% year-on-year, due to the higher cost of funds and the pass-through of recent rate cuts. Analysts polled by Bloomberg expect SBI's NII for the March quarter to be Rs 43,405 crore, up 4% on the year.

For the quarter ended December 2024, the state-owned bank's NII was Rs 41,445.5 crore.

This trend is expected to result in a slight dip in the bank's NIM compared to the previous quarter, with projections ranging from a modest decline of 3-5 basis points sequentially.

"We expect operating profit to decline ~30% yoy as we build NIM compression, lower treasury income and recovery from written-off loans," Kotak Institutional Equities said. Analysts polled by Bloomberg expect the bank's NIM at 2.91%, lower than the 3.15% reported in the prior quarter.

Despite this, operating income growth could benefit from lower staff costs, a positive factor arising from the absence of one-off expenses in the base year, analysts said.

Meanwhile, asset quality of the bank is likely to be sustained with curtailed slippages. Further, better recovery and upgrades of loans will help sustain the gross non-performing assets ratio, Elara Securities said.

Kotak Institutional Equities sees lower recovery and upgrades of loans for the bank. It expects slippages at 1% and does not see fresh concerns arising from the unsecured loan segment.

Provisions will be a key factor to watch as they are expected to rise sequentially following a reversal of provisions in the December quarter. Analysts believe that with strong coverage levels, credit costs could likely be curtailed, but higher provisions could weigh on profitability.

Investors will watch out for the bank's return on equity and return on assets figures for the quarter, as it will offer insights into the bank's operational efficiency amid margin pressures. Further, commentary on capital adequacy ratios, especially in the context of the bank's growth trajectory and potential future capital raises, will also be on the radar.