State Bank of India (SBI) has cut its deposit growth forecast for the current fiscal but retained the credit growth guidance at 14-16%, indicating that the gap between the two important levers would continue.

SBI chairman CS Setty said that the country’s largest lender probably would not be able to reach the deposit growth of 12%-13% it was earlier seeking for FY25. “The effort is to have at least 10%-11% deposit growth," the new chief said.

SBI’s loan book, however, would grow in line with its earlier guidance of 14-16% for FY25, Setty emphasised. For the three-month period ending September, SBI’s gross loans grew 14.9% to Rs 39.2 lakh crore while deposits rose 9.1% to Rs 51.17 lakh crore.

The lower than previously estimated deposit growth in FY25 comes on the back of rising competition among banks. Since April 2002, deposit growth in the banking sector has largely lagged behind the pace of loans, a trend which has worried the Reserve Bank of India (RBI).

Setty, however, is not particulary worried about the bank’s deposit mobilisation as he sees it as an industry struggle. Also, the bank’s credit-to-deposit ratio is at 67%.

As other more lucrative investment avenues have opened up, banks have been forced to raise interest rates on deposits or to moderate loan growth. The average fixed deposit rate has hit the highest in almost eight years, RBI data showed.

Setty, who took over as chairman from Dinesh Khara on 28 August, said SBI’s deposit rates have peaked and lending margins, which have shrunk in the September quarter, will remain stable going forward.

The state-run bank’s domestic net interest margin fell to 3.27% in the quarter ended 30 September 2024, from 3.43% a year ago and 3.35% in the previous quarter.

Setty also said SBI would stay away from a deposit rate war and rather compete on the quality of customer service. The bank will try to contain the cost of deposits and focus on retail term deposits, which are less expensive than bulk.

SBI’s deposit base has ‘crossed the milestone of Rs 50 lakh crore’ as of 30 September. The bank has undertaken several measures to mobilise more deposits, including leveraging its technology and large branch network.

“We have acquired almost 1 million salary accounts during the year. In the case of a corporate salary package account, the average balance is Rs 1.1 lakh,” he said.

Setty is bullish on the bank’s corporate loan growth, which has a sanctioned pipeline of Rs 6 lakh crore. This segment, which grew the highest at 18.4% year-on-year in the September quarter, is expected to keep a similar pace during the fiscal. 

On being queried whether SBI would provide fresh funding for airlines, Setty said the bank would not be keen to do so. Incidentally, the Supreme Court has ordered the liquidation of Jet Airways after years of insolvency resolution process and Go Airlines India, controlled by billionaire Nusli Wadia’s group, has been grounded since May 2023.

“Not many airlines are left now to be funded,” Setty told reporters in a post-earnings conference.

SBI’s unsecured retail loan book is growing slower due to lower demand and not because of concerns around asset quality. “Our asset quality on unsecured retail loans remains strong. Demand in this segment is bouncing back because of the festive season,” Setty said.

SBI looks to tap the infrastructure bonds market as there is sizeable interest from investors. "Infrastructure bonds have certain advantages in terms of CRR (cash reserve ratio), SLR (statutory liquidity ratio) exemptions. It is a good instrument when we have a large infrastructure book. We have been consistently getting a good price in the market compared to other institutions. It makes sense both in terms of efficiency of liabilities and pricing," said Setty. 

In FY24, SBI raised Rs 20,000 crore through two tranches of 15-year infrastructure bonds at coupon rates of 7.54% and 7.49%. 

SBI has also been raising debt through infrastructure bonds this financial year. In June, it raised Rs 10,000 crore via 15-year infrastructure bonds at a coupon of 7.36% and in July a similar amount at the same coupon rate.

Setty aims to make SBI the first company in the country to achieve a net profit of Rs 1 lakh crore in a fiscal. In operating profit, the lender is almost there with a posting of Rs 93,797 crore in FY24. But in net profit it has to make some march forward. In FY24, the bank reported a net profit of Rs 61,076 crore.  “The timeline for net profit is something we need to look at,” said Setty.