State Bank of India (SBI) is set to announce its first-quarter results, with analysts predicting strong loan growth but expressing concerns over declining net interest margins (NIM). The higher cost of funds and term deposit repricing are expected to offset the benefits of robust loan growth.
Nomura forecasts a 4 basis point decline in NIM quarter-on-quarter, despite expecting strong loan growth and healthy treasury income. Motilal Oswal anticipates SBI's NIM to stabilize at 2.84%, following a sharp fall in the March quarter, with corporate loan spreads potentially offsetting term deposit repricing pressures.
Kotak Mahindra Bank does not foresee a recovery in NIM for the June quarter, projecting a 10% year-on-year growth in net interest income, even as loan growth is expected at 17% due to higher funding costs. Kotak also predicts a 5% year-on-year decline in operating profit, driven by slower income growth and fee income.
Loan growth remains a strong aspect of SBI's performance, with Motilal Oswal forecasting a 3.1% quarter-on-quarter increase, led by growth across SME, corporate, agriculture, and Xpress credit segments. However, deposit growth is expected to lag behind, posing challenges for margin stabilization.
Asset quality is anticipated to remain stable, with Motilal Oswal expecting improvements in asset quality ratios and steady credit costs. Kotak projects slippages at around 1.1% of loans, indicating normalisation, but expects lower recoveries and upgrades.
Background
As India's largest public sector bank, SBI's performance is a bellwether for the banking sector. The focus on net interest margins and loan growth reflects broader industry challenges amid fluctuating interest rates and economic conditions.
Looking ahead, the key questions for investors will be how quickly SBI can stabilize its deposit costs and whether it can sustain its loan growth trajectory without increasing credit costs.
