State Bank of India’s March quarter (Q4FY25) results would have been a flop show had it not been for one-off and treasury gains. The public sector lender benefited from a revaluation of security receipts issued by National Asset Reconstruction Co. Ltd, which included Rs3,850 crore from a big account, mainly booked in treasury income.
Given its largest treasury operations in the country, SBI’s pinning hopes on further easing of bond yields, which would enable the bank to make more capital gains in the portfolio. Bond prices have been gaining since the Reserve Bank of India began its rate cutting cycle in February. Bond prices have an inverse relationship with bond yields. SBI is banking on treasury gains to maintain return on average assets of 1% for FY26 as its net interest margin (NIM) continues to be under pressure.
Net profit fell 10% year-on-year to Rs18,642 crore in Q4FY25. Net interest income (NII) grew a mere 2.7% year-on-year as NIM for the whole bank (including foreign offices) fell steeply by 30 basis points (bps) year-on-year to 3%. Though NIM stabilized sequentially, the full impact of the two repo rate cuts of 25 bps each in February and April is yet to reflect. SBI’s management anticipates another 50-bps rate cut.
But for now, SBI is relatively better placed than its private sector peers in terms of a likely incremental hit to NIM. This is because SBI’s share of MCLR-linked loans at 42% is higher than that of its private sector rivals. Repo rate-linked loans are at around 29% with the remaining book on fixed rate.
Indian banks use MCLR, or the marginal cost of funds based lending rate, to determine the lending rates for various loans. Higher MCLR loans will be incrementally positive for SBI, but note that its NIM is already much lower than that of India’s top three private sector banks.
Fee income saw a robust 13% growth to Rs9,896 crore in Q4FY25. Operating expenses surged 18% year-on-year to Rs35,698 crore.
The burden of ageing NPAs
SBI reiterated that it would look to improve its cost-to-income ratio by increasing income rather than by decreasing cost. However, this would be easier said than done as the current growth rate of expenses is much higher than that of income.
Asset quality was decent with gross non-performing assets (GNPA) and net NPA declining sequentially by 25 bps and 6 bps, respectively. Still, NPA provisions jumped 72% sequentially to Rs3,964 crore.
The management attributed higher provisions to the ageing of NPAs. For e.g., when a single loan account remains doubtful for one year, 25% of the secured loan amount has to be kept aside as provision, which goes up to 40% in the next year. Thus, the provision keeps on increasing for the same NPA.
Moreover, SBI has lowered its loan growth guidance for FY26 to 12-13% from 14-16% even as it had a strong corporate lending pipeline of ₹3.4 trillion at the end of FY25. Loans and deposit growth for the bank stood at 12% and 9.5% year-on-year in FY25.
An uncertain global trade environment amid ongoing tariff war was cited as the reason for this downward revision. The deposit growth estimate for FY26 is at 9-10%. Given this, many brokerages have trimmed their FY26 and FY27 earnings estimates for SBI.
The bank has approved an enabling resolution to raise equity up to Rs25,000 crore, but this may not be the best time to raise money given expected margin pressures.
While the SBI stock has declined from ₹912 on 3 June to ₹789, this correction is in-line with the halving of growth rate in NII to about 5% in FY25 from FY24.
