State Bank of India’s Q4 FY25 Results: Navigating Profit Headwinds and EPS Surprises

The State Bank of India (SBI), India’s largest public sector lender, reported its Q4 FY25 financial results, revealing a 10% year-on-year (YoY) decline in standalone net profit to ₹18,642.59 crore, driven by margin pressures and elevated provisions. Despite the profit contraction, the bank’s shares surged briefly before retreating, reflecting investor focus on mixed signals: weaker profitability versus stronger asset quality and loan growth. This analysis explores the key takeaways and implications for investors.

Profit Decline: Margin Pressures and Provisions

SBI’s net profit fell due to a 20.35% YoY rise in loan loss provisions to ₹3,964 crore, coupled with a 32 basis point (bps) contraction in domestic net interest margin (NIM) to 3.15%. Analysts attribute this margin squeeze to the Reserve Bank of India’s (RBI) recent rate cuts and liquidity policies, which compress interest rate spreads. Meanwhile, net interest income (NII) grew 2.7% YoY to ₹42,774.55 crore, highlighting sustained loan demand.

Asset Quality and Capital Adequacy: A Silver Lining

The bank’s asset quality improved significantly, with gross non-performing assets (NPAs) dropping to 1.82% (down 42 bps YoY) and net NPAs at 0.47% (down 10 bps YoY). The provision coverage ratio also strengthened to 74.42%, signaling robust buffers against defaults. SBI’s capital adequacy ratio remained strong at 14.25%, despite plans to raise up to ₹25,000 crore in equity during FY26 through Qualified Institutional Placement (QIP) or Follow-on Public Offer (FPO). This capital infusion aims to support its ambitious 12–13% loan growth target for FY26, underpinning its competitive edge in India’s credit market.

The EPS Conundrum: Analysts’ Estimates vs. Reality

While SBI’s standalone net profit missed consensus expectations (analysts had projected a ₹18,560 crore net profit), the bank’s earnings per share (EPS) reportedly beat estimates, though the exact figure was not disclosed. This discrepancy arises because EPS calculations require the weighted average number of shares outstanding, which was not provided in the results. However, the dividend declaration of ₹15.90 per equity share (up from ₹12.75 in FY24) suggests strong distributable earnings, potentially supporting an EPS surprise. Analysts like JM Financial and Motilal Oswal, who had revised their FY26/FY27 EPS estimates downward due to margin pressures, may need to reassess their models if SBI’s NIM stabilizes or loan growth accelerates.

Market Reaction and Brokerage Views

SBI’s shares fell 2% to ₹783.65 post-results, underperforming the broader banking sector, which rose amid optimism over global trade resilience. Brokers remain cautiously bullish, citing SBI’s superior asset quality and strategic initiatives, such as its MoU with the Land Ports Authority of India to enhance infrastructure financing. Elara Capital raised its target price to ₹942, emphasizing SBI’s potential to achieve 15% return on equity (RoE) by FY26. Meanwhile, JM Financial maintained a “Buy” rating with a ₹960 target, acknowledging near-term margin challenges but long-term growth drivers.

Conclusion: A Bank in Transition

SBI’s Q4 FY25 results paint a picture of a bank balancing growth ambitions with macroeconomic headwinds. The net profit decline underscores vulnerabilities to interest rate cycles and provisioning volatility, while asset quality improvements and robust capital plans provide stability. The EPS “beat” hints at underlying profitability resilience, even if the exact figure remains opaque.

Investors should monitor two critical factors:
1. NIM stability: If the RBI halts rate cuts or SBI’s liability management improves, margins could recover.
2. Loan growth execution: Achieving 12–13% loan growth in FY26 would validate management’s strategy and support RoE expansion.

With analysts’ consensus target prices hovering around ₹950, SBI’s stock offers potential upside if it navigates these challenges effectively. Despite the Q4 profit miss, the bank’s scale, diversified operations, and improving credit metrics position it as a defensive play in India’s banking sector. For now, the verdict remains: SBI’s future hinges on its ability to turn margin pressures into margin resilience.