SBI's Q1 net earnings increase 12.5% annually, reaching ₹19,160 crore year-on-year
State Bank of India Expects Net Interest Margin Recovery by Q4 FY26
State Bank of India (SBI), the country's largest lender, reported a 12.5% year-on-year (y-o-y) and 3% quarter-on-quarter (q-o-q) rise in net profit for the quarter ended June. However, the bank's net interest margin (NIM) took a hit, falling to around 2.86-2.9% in Q1 FY26.
The decline in NIM was due to elevated cost of funds and recent interest rate cuts. SBI's Chairman, CS Setty, has indicated that although margins will soften in the first half of FY26 due to high deposit costs and slower repricing, improvements are anticipated by Q4.
The bank expects moderate pressure on NIM in Q2 FY26 but has a recovery plan working through term deposit (TD) repricing and improved liquidity from CRR cuts. SBI aims for net interest margins to return close to the 3.22% level seen at the end of FY25 by year-end.
The management remains committed to maintaining NIM around 3% for FY26 overall despite short-term margin pressures. SBI expects the NIM to follow a U-shaped trajectory, bottoming out around Q2 FY26 and then recovering to hover near or above 3% by Q4 FY26.
SBI has around ₹7 lakh crore of corporate loans in the pipeline, and the bank's asset quality improved in Q1, with the gross non-performing asset (GNPA) ratio falling by 38 bps y-o-y to 1.83% and the net non-performing asset (NNPA) ratio falling by 10 bps y-o-y to 0.47%.
SBI's chairman also expects auto loans to not pick up in Q2, but growth in home loans and personal loans due to festival demand. Fresh slippages for SBI rose slightly to ₹7,945 crore in Q1, mainly due to NPAs from the agriculture and SME segment.
In addition, SBI has strengthened its infrastructure for gold loans, and the RBI's August policy pause was considered a 'technical move' by SBI, with limited scope for a cut in 2025. SBI's overall advances and deposits rose by 12% y-o-y each in Q1.
Meanwhile, SBI's non-interest income rose 55% y-o-y to ₹17,346 crore, and the bank's net interest income was down 0.1% y-o-y at ₹41,072 crore. Equitas Small Finance Bank's losses increased to ₹224 crore due to one-time payments, and Wockhardt's Q1 net loss widened to ₹108 crore.
In summary, SBI expects NIM to recover to about 3% by Q4 FY26, marking a rebound from the mid-year trough caused by deposit cost pressures and interest rate environment changes. The bank's recovery plan includes TD repricing and improved liquidity from CRR cuts, aiming for net interest margins to return close to the 3.22% level seen at the end of FY25 by year-end.
- The State Bank of India (SBI) anticipates a recovery in its net interest margin (NIM) by Q4 FY26, aiming for levels close to 3.22% seen at the end of the previous financial year.
- SBI's chairman, CS Setty, has indicated that while margins may soften in the first half of FY26, improvements are expected by Q4, resulting in a U-shaped trajectory for NIM.
- In addition to NIM recovery, SBI's business strategy involves managing personal-finance products like home loans and personal loans, expecting growth due to festive demand.
- The bank's expectations are influenced by analysis of the wider economy and financial markets, which may impact business operations and profitability.
- To achieve this goal, SBI has a recovery plan that involves term deposit (TD) repricing and improved liquidity from CRR cuts, as well as strengthening its infrastructure for gold loans.
- The recovery plan is crucial for the bank's business, as it aims to counter the impact of elevated cost of funds and recent interest rate cuts.
- Stocks in the banking sector will likely be affected by SBI's NIM recovery expectations, as it is the country's largest lender and a key player in the sector.
- The expected NIM recovery by Q4 FY26 may have implications for the broader economy, including finance, investment, and personal-finance sectors, given the significant role banks play in these markets.
