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State Bank of India expects loan growth to edge lower amid high interest rates


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No disruption on the road to digitization

State Bank of India expects loan growth to edge lower amid high interest rates

State Bank of India expects credit growth to edge lower in the current fiscal year that started April 1 as higher interest rates bite, after India's biggest lender by assets posted a record annual income.

State Bank of India (SBI) reported a 58.6% rise in net profit to 502.32 billion rupees for the fiscal year ended March 31. Gross advances rose 15.99% to 32.692 trillion rupees, while provisions declined. It marked the first time SBI's net profit topped 500 billion rupees, according to the bank's May 18 earnings statement. Fourth-quarter net profit was up 83.2% year over year to 166.95 billion rupees.

The full-year income also beat S&P Global Capital IQ's GAAP estimate of 491.22 billion rupees. The bank's full-year net interest margin was up 22 basis points to 3.58% from 3.36% in the previous fiscal year, according to the earnings report.

The bank's loan book will "have an opportunity of growing," SBI Chairman Dinesh Kumar Khara said during the bank's May 18 earnings call. "As far as the loan book is concerned, we should be growing somewhere in the range of between 12% to 14% overall."

Still, SBI has "to be very mindful of the fact that for the system as a whole, a significant portion of the credit growth is coming from the retail. And the retail demand is all season — all season demand," Khara said.

The Reserve Bank of India expects the economy to grow 6.5% in the year to March 31, 2024, after an estimated 7.0% expansion in the previous fiscal year, according to an April 6 statement. The central bank increased its policy repo rate cumulatively by 250 basis points in the last 11 months starting May, though it held steady at the last policy review in April.

Credit growth

SBI has continued to outpace systemic credit growth, led by higher retail and small-and-medium-enterprises growth, according to a May 19 note from Emkay Global. The wealth management company said it raised its earnings estimate for the current fiscal year, factoring in higher treasury gains and lower loan loss provisions.

SBI will focus on improving income in the next fiscal year, Khara said. "Our effort and endeavor is to improve our income. And with that in mind, what we have seen in the current financial year, if at all, we improve our income and also we keep the [nonperforming assets] in check, quality of assets remain the best, then perhaps we're in a position to address these challenges."

One of the key challenges for the bank is to keep its costs in check, Khara said, noting that comes from "certain rigidities in our structure" where 18% to 19% of costs is on retiral benefits. "I think as a strategy, we are very clear in our mind that the rigidities we'll have to live with and we'll have to only think in terms of improving our income and cost, we are trying to contain and control with the help of our digital engine," Khara said.

As of May 18, US$1 was equivalent to 82.76 Indian rupees.