SBI Sees Margin Squeeze, But There's Solace in Asset Quality

India's largest lender, State Bank of India (SBI), continues to grapple with narrowing margins as the rising cost of deposits takes a toll.

- Manish Joshi

Investors who hoped for stabilization in SBI's net interest margin (NIM) in the December quarter (Q3FY25) have been disappointed. The bank's NIM fell 21 basis points (bps) year-on-year (y-o-y) and 13 bps quarter-on-quarter (q-o-q) to 3.01% on a standalone basis. It essentially reflects the pressure on deposit costs.

Term deposits were up 13.5% y-o-y to ₹30.5 trillion, but CASA was up by only 4.5% as customers shifted saving account balances to fixed deposits to take advantage of higher interest rates.

The bank's endeavor is to maintain net interest margin at 3% on a sustainable basis.

The management expects a 25 bps cut in repo rate to cause a fall of just 3 bps in their NIM as repo rate linked loans stand at 28% of SBI's loan portfolio.