At India’s largest bank, all eyes on premium customers

Mumbai: State Bank of India may be taking the higher road as it joins the scramble for customer funds without resorting to a rate war, but its outlook signals an extended industry struggle for deposit growth.

India’s largest bank on Friday tempered its guidance on deposit growth to 10-11% from 12-13% for 2024-25 as customers might have now found more lucrative investment avenues. Slowing deposit growth remains a worry for the industry.

SBI chairman C.S. Setty, who took over from Dinesh Khara at the end of August, said the bank has introduced new products, value-added services, and premium banking services to attract high-quality customers.

“We would like to compete on the quality of customer service, not on increasing the deposit rates, while we adequately compensate our customers in terms of interest rates,” said Setty, reiterating his stand that SBI would not engage in a rate war to attract customer deposits.

State-owned banks are going the extra mile to lure depositors, offering them an average term deposit rate that’s the highest in almost eight years, as Mint reported.

The banking industry has been grappling with credit offtake outpacing deposit growth, and SBI is no exception. For the second quarter ended 30 September, it reported deposit growth of 9.1% to ₹51.17 trillion and credit growth of 14.9% to ₹39.2 trillion.

For 2024-25, SBI retained its loan growth estimate of 14-16% while lowering its outlook on deposit growth.

Also read | Earnings review: Three takeaways from banks’ Q2 results

Setty said that SBI’s deposits had “crossed the milestone of ₹50 trillion” at the end of the second quarter, and that the bank had undertaken measures to attract more deposits.

“We have galvanised our largest branch network for this. Every individual working is focussed on deposits. Our effort is to leverage technology and reach,” he said after announcing the bank’s quarterly results.

“We have acquired almost 1 million salary accounts during the year. In the case of a corporate salary package account, the average balance is ₹1.1 lakh, which means that the highly-funded savings accounts are being attracted,” he said.

SBI reported a net profit of ₹18,331 crore for the three months through September, a growth of 27.9% from the same period last year. Its gross bad loan ratio in the second quarter was 2.13%, down 42 basis points from the same period last year, and 8 bps lower than in the June quarter.

Also read | As deposits gain pace, focus shifts to banks’ margins, asset quality in Q2

Analysts seemed relieved that the state-owned bank’s asset quality had held up.

“The biggest relief was the lack of any major asset quality deterioration,” analysts at Sanford C. Bernstein (India) said in a note to clients on Friday. “However, we believe weak deposit growth and weak core income growth could limit the stock reaction, given the already healthy multiple (and the 5-7% rally in the last 2 weeks).”

State Bank of India shares ended Friday trading on BSE at ₹843.25 each, down 1.86% from the previous day’s close.

Strong on corporate credit

On unsecured loans, where some banks are starting to see an increase in asset quality deterioration, Setty said SBI’s quality remained strong. “The demand for unsecured personal loans is slower. We have stated that 95% of our unsecured personal loans are to the salaried classes, where salaries are received in SBI accounts.”

The bank’s corporate credit growth at 18.4% outpaced its retail growth, which was 12.35% in the second quarter. Setty said SBI has a corporate credit pipeline of about ₹6 trillion. These are loans that have been sanctioned but not availed or utilised.

Also read | Banks tighten underwriting, go slow on MFI loans as asset quality stress weighs

Among corporate clients, Setty said SBI was not keen on funding airlines. The Supreme Court on Thursday ordered the liquidation of Jet Airways after years of insolvency resolution process.

“Not many airlines left now to be funded. We have funded airlines based on ownership not necessarily on operational parameters of the airline, but that is also important from the credit underwriting point of view,” said Setty, adding that the bank will not take any big bets on the airline industry going forward.