SBI’s conservative FY27 guidance leaves investor wanting more
The September quarter (Q2FY27) of State Bank of India (SBI) was a mixed bag. An improved margin profile and asset quality were offset by softer operating performance. Domestic net interest margin (NIM) improved 11 basis points (bps) sequentially to 3.11%, clearing the bank’s “above 3%” commitment.
NIM expansion was noteworthy given expectations of margin pressure from FCNR(B) or foreign currency non-resident bank deposit mobilization, which helped replace a portion of domestic wholesale funding requirements, and intensifying competition for low-cost deposits.
Lower funding costs and improved loan yields translated into stronger core net interest income (NII) of ₹49,143 crore. SBI’s 15% year-on-year (y-o-y) rise in NII is top-tier among large-cap banks, said Jefferies India. However, the improvement comes with a trade-off. FCNR(B) deposits cannot be a substitute for low-cost Casa deposits. SBI’s Casa ratio as share of domestic deposits declined to 38.32% from 39.63% a year earlier, highlighting a continuing challenge of acquiring low-cost deposits.
Net profit rose 14.28% year-on-year in Q2FY27, while operating profit increased 7.28% to ₹34,226 crore. This included an exceptional gain of around ₹7,288 crore from the stake sale in SBI Funds Management, partly offset by treasury and forex losses of approximately ₹1,300 crore amid rising bond yields.
Gross NPA declined to 1.39% of advances from 1.73% a year earlier, while net NPA improved to 0.36%. Credit costs declined to 22bps from 39bps year-on-year. Lower slippages, improved recoveries and upgrades, and better asset quality supported this improvement.
For H1FY27, loans or advances grew 17.8% year-on-year driven by agriculture, SME and corporate portfolios. A corporate pipeline of around ₹7 trillion provides runway for H2 growth. In Q2FY27, domestic NIM stood at 3.11%, while return on assets (RoA) and return on equity (RoE) were at 1.14% and 18.68%, respectively, in H1FY27. Despite this, SBI retained its credit growth target of 14-15%, domestic NIM above 3%, RoA of 1% and RoE above 15%.
NIM is expected to be supported by the full impact of the repo rate hike and MCLR repricing, while the impact on the cost of funds may be limited due to the liquidity buffer. Citi Research notes that whole bank loan growth in Q2FY27 was modest at 3.3% sequentially and 18.2% year-on-year, lagging the system. For FY27, it expects SBI to clock loan growth of 16% plus.
Basis H1 performance, the guidance seems conservative. SBI is prioritizing sustainable profitability rather than taking risk to boost earnings, but the gap between the current performance and guidance may reflect uncertainties. Credit growth of 17.84% is outpacing deposit growth of 12.27%, and if this divergence persists, SBI may need to compete more aggressively for deposits, which could eventually increase funding costs. Management has highlighted excess statutory liquidity ratio (SLR) holdings and available liquidity as buffers, which can provide temporary flexibility for funding rather than solution to deposit repricing.
From its 52-week high of ₹1,234.70, the stock is down 21%. “SBI’s core fundamentals remain stable and support an RoA of around 1% on average over FY27–29E,” said JM Financial Institutional Securities. “Furthermore, SBI has lower exposure to insurance income than private peers (2.6% of FY26 PBT versus 6.5% average for large private banks).”
When non-insurance corporations hold significant insurance-related assets that yield low returns and are capital-intensive, this can erode RoA. “However, treasury volatility and the Supreme Court’s ruling on Yes Bank AT1 bonds (SBI holds a 10.8% stake; no impairment considered yet) remain the key variables to monitor,” JM added.