Drag on SBI's Q3 net interest margin evokes concerns among brokerages, but asset quality offers comfort

SBI's Q3 net profit surpassed Street's estimate but net interest income lagged expectations.

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26 Aug, 2025 12:21

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State Bank of India reported mixed Q3 numbers, however, a decline in the state-run lender's net interest margin emerged as an area of concern for brokerages. On the other hand, a consistent improvement in the lender's asset quality offered some comfort.

The state-run lender delivered an 84 percent on year surge in its net profit to Rs 16,891 crore in Q3, beating estimates even as a 4 percent increase in its net interest income to Rs 41,446 crore lagged expectations. Net interest margin (NIM) continued to see pressure and dropped another 13 basis points on quarter to 3.01 percent. Cumulatively, SBI's net interest margin has eroded 29 basis points since the end of FY24.

Concerns over NIM compression also weighed on SBI's share price. The stock slipped over 1 percent in early deals on February 7 and at 09.27 am, it was trading at Rs 742 on the NSE.

Brokerage firm Morgan Stanley attributed the drag on NIMs as the key behind behind SBI's below-expected net interest income. Adding to that, Bernstein believes that it was margin pressure that drove down return on assets (RoA) to 1 percent despite the lender's stable asset quality.

Morgan Stanley has an 'equal-weight' call on SBI with a target price of Rs 865, while Bernstein held on to its 'market-perform' rating with a target of Rs 900.

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Taking the trend further, CLSA too remained disappointed with the slight drag in NIMs while it liked SBI's steady asset quality.

Factoring the weakness in NIMs, HSBC also slashed its price target for the stock by over 9 percent to Rs 800 while retaining its 'hold' call on SBI. The firm sees muted earnings-per-stock growth over FY25-27 amid expectations of persisting NIM pressures. Accordingly, HSBC also cut its FY25-27 EPS estimates for the stock by 1.5-5.2 percent.

Meanwhile, the lender's deposits grew 9.81 percent year-on-year to Rs 52.3 lakh crore in Q3, up from Rs 47.62 lakh crore in the same period last year. Looking ahead, the management remains confident of achieving 10 percent deposit growth in FY25, lowering its target from 11-12 percent that it guided in the previous quarter. This guidance of 10 percent deposit growth comes out as uninspiring according to CLSA. The brokerage has an 'outperform' call on SBI with a price target of Rs 1,050.

In contrast to the consensus, brokerage firm Nomura offers a more optimistic view for SBI. The firm highlights the state-run lender's strong RoE outlook along with attractive valuations and hence retained its 'buy' call on the stock. Nomura has a price target of Rs 1,000 for SBI.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.