Further rate cuts by RBI will put pressure on bank's margins going ahead: SBI Chairman CS Setty

Challa Sreenivasulu Setty, Chairperson of the State Bank of India

Country's largest lender, State Bank of India (SBI) is expected to see pressure on the margins due to further rate cut expectations by the Reserve Bank of India (RBI) in upcoming monetary policy, Chairman CS Setty said.

"We expect another 50 base point rate cuts, which means there is definitely going to be some pressure on the margins," Setty said while addressing the post earnings press conference.

He cited the reason for it as some of the portfolio gets repriced immediately with policy rate cut, while the deposits will take some time, and the lag is generally 12 to 18 months, which impacts the margins.

"This lag impact will be having some margin pressure," Setty said.

In January-March quarter, SBI's net interest margins (NIM) of whole bank reduced to 3 percent, from 3.10 percent in a quarter ago period, and 3.30 percent in a year ago period.

Similarly, domestic NIMs fell to 3.15 percent in a reporting quarter, from 3.47 percent in a year ago period. It remains flat on a quarterly basis.

There is a growing consensus among market participants that the RBI will cut more rates in the coming policies, in order to support growth amid a tariff war, with a cooling inflation providing the elbow room for lower rates.

Setty also said that outlook for margins is completely dependent on the rate cycle and with the benign inflation scenario what we have, we expect that there would be further rate cuts.

On April 9, the central bank reduced the key repo rate by 25 bps, the second such cut in a row, on a benign inflation outlook and moderate growth. It also shifted its stance from ‘neutral’ to ‘accommodative’.

On April 21, Moneycontrol reported that bankers are assessing the potential impact of further rate cuts by the RBI during the rest of the year on their net interest margins.