SBI bets on retail, MSME push to keep NIM above 3%

Synopsis

State Bank of India aims to maintain net interest margins above 3% in FY27, driven by easing funding costs from deposit repricing. However, slower CASA deposit growth compared to credit expansion may necessitate reliance on costlier term deposits. The bank plans to boost yields by accelerating growth in retail and MSME loans to offset margin pressures and support fee income.

ET Intelligence Group: State Bank of India (SBI) expects to maintain net interest margin (NIM) above 3% in FY27, aided by the completion of deposit repricing that has eased funding costs. Sustaining margins, however, will be a tough task as deposit growth continues to lag credit expansion which may compel the bank to lean more on high-cost term deposits amid muted CASA (current account savings account) mobilisation. A key lever will be improving yields on advances by accelerating growth in the non-corporate book. Retail and MSME loans, which have higher spreads than corporate loans, can help cushion margin pressures. A higher share of retail loans may also support fee income growth at a time when treasury income has weakened due to volatility in bond markets.

The non-corporate loans for SBI have been growing faster than corporate loans. Corporate advances grew 14.8% year-on-year in FY26 while retail, agriculture and MSME loans, also called RAM, rose 17%. Similarly, corporate advances grew 9% year-on-year in FY25 while RAM advances rose 13%.

Agencies

style of play A key lever for the lender will be improving yields on advances by accelerating growth in the non-corporate book

"Growth is likely to be stronger in non-corporate segments such as retail and MSME than in corporate loans in the coming quarters thereby improving NIM from here on," Yuvraj Choudhary, research analyst, Anand Rathi Institutional Equities told ET.

NIM of the lender declined to 2.93% in the March 2026 quarter from 3.11% in the previous quarter and 3.14% in the year-ago quarter. On annual basis, NIM declined to 3.03% in FY26 from 3.21% in FY25.

One of the concerns in the near term is that the bank may not have enough room to significantly reduce the cost of funds given high competition for low cost CASA deposits. SBI's share of CASA deposits in total deposits declined to 39.5% as of March 2026 from 40% a year ago and 41% two years ago. CASA deposits grew at a slower rate of 9.5% to ₹22.6 lakh crore as of March 2026 while term deposits, despite higher base, grew at a higher rate of 11.9% to ₹34.7 lakh crore. The trend of slower growth in CASA deposits comes amid depositors shifting their funds from savings deposits to fixed deposits, or investing in mutual funds and equities for higher returns.

"Though term deposits are relatively sticky sources of funding, they carry a higher cost than CASA deposits," said Choudhary, adding that a higher share of term deposits in the liability mix is likely to affect the bank's cost of funds.

The bank's other income in the latest March quarter was hit by treasury losses as bond yields hardened past 7% amid geopolitical uncertainty. SBI's management expects yields to settle in the 6.75%-6.90% range during the current fiscal year. However, lack of visibility on how long the West Asian conflict persists clouds the trend in treasury income for the year.

Motilal Oswal Financial Services has lowered its earnings estimates for SBI by 3% for FY27 and 5% for FY28. The broker has maintained a 'Buy' rating on the stock with a price target of ₹1,300, implying a 28% upside from Friday's closing price of ₹1,019 on the BSE.

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