SBI Q4 Preview: Can the largest PSB deliver good profits despite treasury pain?

State Bank of India (SBI) is expected to report a muted March quarter this Friday, with treasury losses likely to weigh on earnings even as loan growth, margins and asset quality remain largely stable. According to the average estimates of six brokerages, India’s largest lender is expected to post around 2% year-on-year growth in net profit, while net interest income (NII) is seen rising about 7% year-on-year in the March quarter.

Street estimates suggest that the quarter may be a story of resilient core banking performance offset by mark-to-market pressure on the investment book as government bond yields hardened during the quarter.

Brokerage Systematix expects SBI's sequential loan growth to remain broadly in line with industry trends. It sees the cost of funds remaining stable and more than offsetting moderation in yields on advances, leading to a marginal improvement in net interest margins (NIMs).


Fee income is expected to improve sequentially, although treasury income could moderate. Systematix also expects operating expenses to rise sequentially, driven by higher employee and other administrative costs. Slippages and provisions are also expected to move up quarter-on-quarter, implying slightly higher credit costs.

Brokerage Motilal Oswal remains constructive on margins. It expects SBI's NIM to sustain around 3%, supported by repricing of yields and some easing in funding costs. The brokerage sees credit growth of about 3% quarter-on-quarter, led by broad-based expansion across SME, corporate and Xpress Credit portfolios.

Asset quality is expected to improve further, while return on assets is likely to stay steady at around 1.1%. Analysts at Nomura expect loan growth of about 17% YoY and 5% sequentially, highlighting SBI’s continued market share gains.

Nomura also expects NIM performance to remain among the most resilient in the PSU banking space, with yield repricing offsetting lower funding costs. However, the brokerage flagged treasury income as the biggest headwind for the March quarter as government securities yields hardened. Credit costs are expected to remain stable at around 40 basis points.

Meanwhile, Kotak is slightly more cautious. It sees SBI's operating profit declining about 11% YoY, mainly due to weaker treasury income. The brokerage is building in around 5% NII growth despite 14% loan growth, as higher funding costs and transmission of recent rate cuts weigh on spreads.

Kotak expects slippages at around 0.9% of loans, which would imply normalisation rather than any fresh stress in the loan book.

Analysts say the biggest monitorables for investors will be management commentary on deposit mobilisation, margin outlook, loan growth trajectory and credit costs, especially as the banking sector enters a lower-rate environment.

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