India's leading lender State Bank of India (SBI) is expected to report a muted June quarter, with profit likely to fall from a year earlier as margin pressure and slower income growth weigh on earnings despite healthy loan growth. The country's largest lender is expected to report a 4% year-on-year (YoY) decline in profit after tax for Q1FY27, according to the average estimate of six brokerages.
The main worry for investors will be net interest margin. Analysts expect loan growth to remain strong, but the benefit may be partly offset by higher cost of funds and term deposit repricing.
Nomura expects loan growth to be strong in the first quarter, but sees net interest margins declining by 4 basis points quarter-on-quarter. It also expects treasury income to remain healthy during the quarter.
The brokerage said commentary on the FCNR(B) deposit scheme, NIM trajectory and credit cost outlook will be key monitorables.
Kotak Mahindra Bank also does not expect a recovery in NIM in the June quarter. It expects net interest income to grow around 10% year-on-year, even as loan growth is seen at 17%, due to higher cost of funds.
Kotak expects operating profit to decline about 5% YoY, led by lower income growth. It is also building in slower fee income growth for the quarter.
The deposit trend will be important because banks have been facing pressure to mobilise funds at higher rates. For SBI, the pace of deposit growth and cost of deposit repricing will decide how soon margins can stabilise.
Kotak expects slippages at around 1.1% of loans, indicating normalisation over time. It does not expect fresh concerns in any portfolio. However, it also expects lower recoveries and upgrades during the quarter.
For investors, the key questions will be whether SBI can defend margins, how quickly deposit costs stabilise, and whether loan growth can continue without pushing credit costs higher.
