State Bank of India’s Profit Declines Amid Margin Pressure: What Investors Need to Know

The State Bank of India (SBI), India’s largest public-sector lender, reported a 10% year-on-year decline in its Q4 FY2024 net profit to ₹18,643 crore, underscoring the challenges facing banks in a slowing economy. While the bank’s strong loan growth and improving asset quality provided some comfort, margin pressures and rising provisions highlighted risks that could weigh on its performance in the coming quarters.

Key Financial Headwinds

SBI’s net profit missed consensus estimates of ₹18,106 crore, reflecting broader macroeconomic headwinds. The bank’s net interest margin (NIM)—a key profitability metric—held steady at 3.01% due to 40% of its loans being tied to the Marginal Cost of Funds-based Lending Rate (MCLR), which insulates margins from interest rate cuts. However, this stability came at a cost: funding costs remain sticky, squeezing margins as lending rates decline.

Meanwhile, provisions for bad loans surged 300% YoY to ₹6,442 crore, a stark contrast to the ₹1,610 crore provision in the same quarter last year. Analysts attributed this to heightened caution about potential slippages in a slowing economy, despite improvements in asset quality. Gross non-performing assets (GNPAs) dipped to 1.82% of advances, down from 2.24% a year earlier, while net NPAs fell to 0.50%, marking a stabilisation in credit quality.

Growth Drivers and Operational Challenges

On the positive side, SBI’s loan book grew 13.1% YoY to ₹41.9 lakh crore, outpacing systemic growth and signaling strong demand for credit. Deposits also rose 9.2% to ₹53.7 lakh crore, maintaining a healthy loan-to-deposit ratio of 78%. However, operational costs surged 13% YoY to ₹1,12,590 crore, driven by rising expenses in technology and compliance.

The bank’s pre-provision operating profit (PPOP) dropped 6.5% YoY to ₹26,886 crore, though it grew 14.2% sequentially, suggesting some operational efficiency gains. SBI also announced a dividend of ₹15.90 per share, with plans to raise up to ₹25,000 crore in FY2025-26 via qualified institutional placements or follow-on public offers to bolster capital.

Market and Analyst Perspective

Investors reacted cautiously to the results, with SBI’s shares closing 1.51% higher at ₹800.05 ahead of the announcement. Technical analysts highlighted that a breakout above ₹820 could push the stock toward ₹900, while a drop below ₹770 might trigger further declines.

Analysts at ICRA and Motilal Oswal projected a 9% CAGR in earnings over FY2025-FY2027, with return on assets (RoA) and return on equity (RoE) expected to reach 1.06% and 16.8% by FY2027, respectively. These forecasts hinge on stabilising margins and managing provisioning pressures.

Risks Ahead

The biggest near-term risks for SBI include:
1. Margin contraction: With interest rates likely to remain low, funding costs may continue to pressure NIMs.
2. Provision volatility: The 300% YoY jump in provisions underscores the unpredictability of credit costs in a slowing economy.
3. Capital adequacy: The ₹25,000 crore capital raise plan could dilute existing shareholders unless executed strategically.

Conclusion

SBI’s Q4 results paint a mixed picture: the bank remains a growth engine in India’s financial sector, with robust loan expansion and improving asset quality. However, margin pressures and rising provisions pose clear risks. Investors should monitor NIM trends closely, as well as the bank’s ability to control costs and manage credit risks.

While the dividend payout and capital-raising plans signal confidence in long-term stability, the path to sustained profitability will depend on macroeconomic recovery and the bank’s agility in navigating rate-sensitive margins. For now, SBI’s stock appears fairly valued, but its trajectory hinges on whether it can mitigate margin headwinds and capital needs without sacrificing growth.

In a sector where scale matters, SBI’s dominance in deposits and loans offers a solid foundation. Yet, the road to consistent earnings growth will require more than just balance sheet expansion—it will demand disciplined cost management and smarter risk allocation. The next few quarters will be critical in determining whether the bank can turn the tide on its margin challenges and deliver on its growth targets.