An average single-digit growth in net interest income and flat profits dampened SBI’s earnings for Q1FY25. But a closer reading throws up a few things to cheer. Here are key takeaways from SBI’s Q1FY25 results.
Income
The bank recorded net interest income (NII) growth of 5.7 per cent on a year-on-year basis, which is below the double-digit growth reported by some of the major lenders across public and private sector. There was no YoY growth in net profit while it declined 17.7 per cent quarter-on-quarter.
Three factors are at play here. First, the net interest margin (NIM) contracted YoY and QoQ. Second, the bank has made more provisions this quarter (more on this under ‘Asset quality’). Third, other income was down due to a change in accounting, in line with the RBI’s revised norms on investments.
All is not bad though. The bank has managed to get away with a NIM compression of just 11 bps YoY at a time when the cost of deposits (domestic) has grown by 45 bps. The management is also sanguine about maintaining NIM at 3.1-3.2 per cent for FY25, despite expectations of rate cuts. The cost-to-income ratio has fallen to 49.4 per cent. Despite weak profit growth, return on assets (RoA) remains above 1 per cent and return on equity (RoE) is at a healthy 20.98 per cent for the quarter.
Asset quality
During the quarter, fresh slippages grew to ₹7,903 crore from ₹3,867 crore in the previous quarter, mainly in unsecured personal loans and agri loans. The management attributes the slippages in personal loans to the delayed salaries of some state government employees. Note that the SBI’s personal loan portfolio consists of loans to salary account holders. Slippages in the agri segment were mainly due to seasonality. The resulting ramp-up of provisions impacted net profit.
However, the silver lining is the 10 bps YoY decline in slippage ratio (even though absolute slippages were high) and the fact that the bank has already pulled back ₹1,600 crore from the provisions made. Headline asset quality ratios are steady and at comfortable levels. Gross non-performing assets (GNPA) ratio stands at 2.2 per cent and net NPA ratio stands at 0.6 per cent.
Balance sheet
Gross advances grew at an impressive 15.4 per cent YoY versus the 14 per cent growth exhibited by all scheduled commercial banks (SCBs) during the quarter, according to the management. Nevertheless, deposits grew at 8.2 per cent, versus 11 per cent for SCBs combined. Term deposits grew 12.2 per cent YoY, while the low-cost current account-savings account (CASA) balances grew at a mere 2.6 per cent. The CASA ratio also shed 218 bps from Q1 FY24 levels.
The management is not chasing deposit growth, which could come at the cost of a NIM compression. With loan demand still robust, competition is heating up for deposits. But a sub-70 per cent domestic credit-deposit (CD) ratio puts SBI in a unique spot vis-à-vis private sector counterparts, who are running on overheated CD ratios. The management is optimistic of 15 per cent loan growth and 70-72 per cent CD ratio this financial year.