By Amriteshwar Mathur
The results of State Bank of India, the largest bank in the country, were keenly awaited in a bid to see its ability to manage the impact of higher deposit rates and sluggish growth trends in the economy. And while SBI has shown strong growth in loans and net profit in the December 2025 quarter, it has lagged its private sector rivals in terms of returns on assets (annualized).
Performance in the December 2024 quarter
For a key performance metric, net interest margin (NIM), for SBI in its domestic operations was 3.15 % in the third quarter of FY 25 vis-à-vis 3.34 % a year earlier.
For smaller rival ICICI Bank it was 4.25 % in the third quarter of FY25 vis-à-vis 4.43 % a year. Banks have faced pressure on NIMs at a time when deposits rates have been high and the central bank has also curbed higher margin unsecured loans. However, in the case of larger rival, HDFC Bank, it was 3.62% on interest earning assets in the third quarter of FY 25 vis-à-vis 3.6 % a year earlier.
Meanwhile, SBI reported a 13.5 % y-o-y growth in its total advances to Rs 40.67 lakh crore in the third quarter of FY25 and that was led by strong credit demand from corporates, SME and agriculture sector.
Similarly, ICICI Bank’s total advances also increased by 13.9 % on a y-o-y basis to Rs 13.14 lakh crore in the December 2024 quarter. In the case of HDFC Bank, advances grew a lackluster 3% y-o-y to Rs 25.42 lakh crore in the December 2024 quarter.
SBI, like its peers in the private sector, benefited from fairly strong asset quality – its percentage of net NPAs was 0.53 % in the December 2024 quarter vis-à-vis 0.64 % a year earlier.
For ICICI Bank its % of net non-performing customer assets to net customer was 0.42 % in the third quarter of FY25 vis-à-vis 0.44 % a year earlier. And HDFC Bank’s percentage of net NPAs to net advances was 0.46 % vis-à-vis 0.31 % a year earlier.
Apart from strong demand from credit, SBI benefited from lower operating costs – staff costs declined nearly 17% y-o-y to Rs 16,073.7 crore in the third quarter of FY25. The senior management in the post-results press conference highlighted one-off staff related expenses a year earlier.
As a result, SBI’s standalone net profit grew 84.3 % y-o-y to Rs 16,891.4 crore in the December 2024 quarter and that was much faster than its private sector peers.
And ICICI Bank’s standalone net profit grew 14.8 % y-o-y to Rs 11,792.4 crore in the December 2024 quarter while HDFC Bank’s standalone net profit grew barely 2 % y-o-y to Rs 16, 735.5 crore in the quarter under review.
And despite the strong performance in the third quarter of FY25, SBI’s return on assets (annualized) lagged behind its private sector rivals – for SBI it was 1.04 % in the December 2024 quarter while for ICICI Bank it was 2.36 %, for HDFC Bank it was 1.9 % and for Kotak Mahindra Bank it was 2.3%.
Stock performance on Dalal Street
The SBI stock has declined nearly 11 % per cent over the past three months while the Sensex has fallen about two per cent during this period.
ICICI Bank share price has fallen barely two per cent during this period given its strong return on assets.
Outlook going forward
The RBI had recently announced an infusion of nearly Rs 1.5 lakh crore in the banking system in phases. In addition, last week’s Union budget had virtually removed personal income tax for the middle class with incomes upto nearly Rs 12 lakh in a financial year.
All eyes are now on the RBI’s monetary policy review and the decision is expected on Friday, with most analysts expecting the central bank to cut rates by 25 basis points.
The recent steps taken by the Union government and the central bank are expected to revive sluggish consumer demand, especially in urban areas, where employment opportunities have become considerably more difficult. In its quarterly monetary policy review meeting in early December 2024, the RBI had downgraded real GDP growth forecast to 6.6 % for FY 25 from the previous forecast of 7.2 per cent.
And an anticipated pick-up in consumer spending over the next few quarters and softer deposit rates going forward would help banks to improve their NIMs and also grow their loan books at a faster pace.
SBI with more than 22, 700 branches across the country is well positioned to take advantage of an anticipated pick-up in the domestic economy, going forward.
Valuations
At Friday’s close, the share price of SBI was Rs 753. SBI trades at nearly 12.9 times estimated standalone FY 25 earnings, while ICICI Bank and HDFC Bank trade close to 19 times estimated standalone FY 25 earnings.
And while SBI has trailed its private sector peers in terms of return on assets in the quarter under review, it does look attractively priced and well positioned to take advantage of a rebound in the domestic economy going forward.
Disclaimer
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer and his dependents hold stocks discussed in this article.
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