SBI projects optimism in itself, economy after strong Q4

State Bank of India (SBI) on Thursday expressed confidence in growing its credit book by 14-16% in the current fiscal year, reflecting the general optimism around domestic growth, after delivering stellar results for the March quarter and FY24.

“Once again, we have delivered excellent numbers,” chairman Dinesh Khara told media persons after announcing the bank’s financial results on Thursday. “Our net profit for the fiscal year FY24 is the highest ever.”

However, India’s largest lender’s projected deposit growth of 12-13% for FY25 would continue to lag its expected growth in credit, a phenomenon plaguing the entire banking industry.

The bank reported its highest-ever quarterly and fiscal year profit at ₹20,698 crore and ₹61,077 crore, respectively. Its net profit for the March quarter rose 24% year-on-year (y-o-y), comfortably beating the Bloomberg estimate of ₹13,440 crore. The bank’s deputy managing director (finance) Saloni Narayan quipped that the bank has been breaking new records every quarter.

The outside view 

Analysts said SBI’s results had multiple surprises. “SBI reported its Q4 FY24 results, with a multi-quarter high RoA (return on assets) of 1.36% as the key highlight, helping drive the full-year RoA over 1%. A slowdown in opex growth (thanks to the higher base), sharp rise in net operating income gains and continuation of ultra-low credit costs helped the bank report a profit after tax growth of over 24% y-o-y,” said analysts at Sanford C. Bernstein.

Also read: After stellar FY24, SBI aims at better show in next fiscal

The market reacted positively to the numbers, with the bank’s shares on BSE closing 1.14% higher at ₹819.65 on Thursday.

Given the growth trajectory, the bank could look at raising more capital through channels that could include equity as well as additional tier-I bonds. “The bank is open to raising equity capital if the growth trends so warrant,” said Khara.

SBI’s total capital adequacy ratio stood at 14.28%, 40 basis points (bps) lower than the same period last year. A bps is one-hundredth of a percentage point. Capital adequacy ratio is the ratio of a bank’s capital to its risk-weighted assets, and indicates how easily a bank can meet its obligations.

The reason behind SBI's optimism

Khara’s optimism is based on the broad-based growth the bank saw in the loan portfolio in the three months through March. While retail loans grew 14.7% y-o-y, corporate loans were up 16.2%. Small businesses and agriculture sectors, too, were strong contributors, growing 20.5% and 17.9%, respectively. This led to the bank’s overall loan book in India expanding 16.3% y-o-y as on 31 March. “We are seeing (corporate) growth (also) coming from the conventional industries,” said Khara.

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The SBI chairman is also banking on the multiplier impact of infrastructure spending to propel economic growth. “The multiplier component of infrastructure spending is almost four times, which actually means that once infrastructure is given a push, it gives a significant push to all other investments,” said Khara.

To be sure, while the government has been pushing more spends in the infrastructure sector, private sector capital expenditure has not kept pace with expectations.

According to Khara, the bank is seeing credit demand coming from industries like batteries, electric vehicles and semiconductors. SBI has a loan pipeline—those that are sanctioned but are yet to be used—of ₹4 trillion, with 75% of it originating from the private sector. The bank’s aggregate corporate advances as on 31 March stood at ₹11.4 trillion.

SBI has also been facing an upward movement in its domestic cost of deposits, a metric that feeds into the bank’s net interest margin (NIM), a key metric of profitability. The cost of deposits has been rising at least for the past four quarters, according to the bank’s presentation to analysts. In Q4, it stood at 4.81%, up from 4.75% in the December quarter.

Khara said the bank is mindful of its liability portfolio or deposits as it provides a stable stream of resources. “We continuously monitor the concentration in deposit profile daily, ensuring that dependence on wholesale funding is contained within the prescribed levels,” he said.

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That said, Khara believes that deposit cost has now plateaued and there is unlikely to be any more impact on that front. The bank’s domestic NIM stood at 3.47% in Q4 FY24, up 13bps sequentially but down 37bps on a y-o-y basis. “We should be in a position to maintain NIMs at this level,” he said.

The bank posted a 3.1% rise in net interest income—the difference between interest earned and expended—to ₹41,655 crore.

The road ahead

Going ahead, the bank wants to look at some areas where it could further improve its performance. “On the liability side, we continue to focus on increasing our share in current accounts, while maintaining our leadership position in savings deposits. We aim to lower our cost-to-income ratio by focussing on the income side,” said Khara.

SBI saw a domestic deposit growth of 11.1% y-o-y to ₹47.2 trillion as on 31 March. Its growth in term deposits outpaced its growth on low-cost current and savings account or CASA. While term deposits grew 16.4% y-o-y to ₹27.8 trillion, CASA was up 4.3% y-o-y to ₹19.4 trillion.