State Bank of India (SBI) has prepared for a strong loan growth in FY27 and a recovery in lending margins amid the US-Iran war clouds which threaten to occupy the skies for more months.

The country’s largest lender delivered a mixed performance in the fiscal fourth-quarter, reflecting brisk credit growth but contraction in lending margins.

SBI chairman CS Setty, however, has stuck to the current fiscal guidance on loan growth and maintenance of domestic net interest margins (NIM), despite the US-Israel conflict with Iran. He has also assured that asset quality would hold up unless something dramatic happens in the system.

“As things stand now, we are sticking to our credit growth guidance of 13%-15% and credit cost of 50 basis points. The bank’s NIM should be more than 3% for FY27,” Setty said.

SBI, however, saw its share price fall nearly 7% on the day it announced a net profit of Rs 19,684 crore for the fiscal fourth-quarter ended March 2026, which was up 5.58% (Rs 18,643 crore) from the year-ago period but down 6.39% (Rs 21,028 crore) from the preceding quarter amid subdued growth in net interest income (NII) and treasury losses. 

The NIM issue in Q4

Analysts are concerned about the pressures on NIM as the conflict in West Asia continues and deposits lag behind loan growth. For the March 2026 quarter, the lender’s NIM compressed to 2.81% from 2.98% in the preceding quarter and 2.99% a year ago. Domestic NIM also narrowed to 2.93% for the quarter ended March, from 3.11% in the previous quarter and 3.14% a year ago.

The growth in the corporate loan book did not help in elevating the margins as yields are relatively lower and highly competitive in this segment. 

“Corporate loan growth will always lead to some compression of NIM but it is more relationship-oriented and boosts other income or capital efficiency. The retail, particularly MSMEs and personal loans, give a good spread,” said Setty.

The bank’s corporate loan book grew 14.83% in the quarter ended March 2026 to Rs 14.25 lakh crore from Rs 12.41 lakh crore a year ago. The lender’s gross advances rose 16.87% on-year and 5.3% on-quarter to Rs 49.33 lakh crore, with RAM (retail, agriculture and MSME) loans up 17.11% YoY at Rs 27.65 lakh crore.  

The corporate loan segment, which comprises 34% of SBI’s domestic advances, is expected to see strong growth in the current fiscal as well. The bank has a current pipeline of Rs 5 lakh crore, with demand coming particularly from infrastructure, renewable energy, conventional thermal energy, auto manufacturing and refineries. 

For NIM to improve, SBI has decided to rely on pushing loan yields up as the scope to use the deposits tool is limited at this stage.

“We have 60% of fixed deposits and the growth in this segment is significant for us. On the retail term deposits, we get around 14-15% of growth. There is a possibility of reducing the cost of resources, but it may not be very significant,” said Setty. 

The fall in cost of resources can happen in two ways. One is to further augment the low-cost CASA (current account savings account) deposits in absolute amount. The second step is to reduce the wholesale deposits, which are expensive. 

“Movement on these fronts will be very limited,” said Setty. “The improvement in NIM will be more in terms of the yield and advances management. We would be looking at asset mix and also increasing spreads wherever it is feasible, both on the corporate side as well as on the retail front.” 

While SBI expects credit growth for the banking system to be at 13-14% in FY27, deposit growth would be in the range of 11-12%.

SBI’s deposits for the March 2026 quarter rose 11.03% on-year and 4.8% on-quarter to Rs 59.76 lakh crore. This lagged behind the almost 17% growth in gross advances YoY. 

Setty said the bank’s deposit growth would be enough to fund its credit growth. While there would be efforts made for retail deposit mobilisation, he said aggressive pricing would not be the strategy and the cost of resources would be kept in mind.

The low-cost CASA (current account savings account) share in domestic deposits fell to 39.46% as on 31 March 2026 from 39.97% a year ago. Savings account deposits grew 10.60% and current account by 4.53% during the March quarter. 

“We have completely pivoted towards non-governmental current account where we saw 23% growth. We have had 21% decline in the government current account deposits in the last year. I think 39-40% of CASA for a book of our size is a phenomenal level,” Setty said.

Analysts said they were also disappointed with SBI’s NII data for the March quarter, which fell below market estimates to be at Rs 44,380 crore. This was up 4.13% YoY but down 1.35% from the preceding December quarter.

SBI's income from treasury operations dropped to Rs 1,259 crore from Rs 8,991 crore a year earlier.

US-Iran war

On the impact the West Asian conflict would have on the economy, Setty said broad-based stress is not visible yet but there are clusters which are definitely feeling affected. “The Morbi cluster, for example, is not producing because gas is not being affordable. We are working on what kind of support they need,” he pointed out. 

Aviation and hydrocarbon-linked industries are likely to be impacted the maximum. Setty clarified that credit issues have not yet surfaced. “The oil companies are impacted, but they have very strong balance sheets. I think, there are no credit-related issues with them. They may have their own P&L issues, but it will not translate to a credit issue,” he said.

Asset quality improves

SBI’s non-performing asset (NPA) ratios stood at over two-decadal low.

The bank’s gross non-performing assets (NPA) ratio fell to 1.49% as of 31 March 2026 from 1.57% a quarter ago and 1.82% a year earlier. 

Net NPA ratio was at 0.39%, same as the previous quarter but lower compared to 0.47% a year ago.

The slippage ratio was at 0.54% for the year and credit cost was contained at 0.37%.

FY26 performance

For the full fiscal, SBI reported its highest-ever net profit at Ra 80,032 crore, up 12.88% YoY. This was supported by an 11.25% YoY rise in operating profit to Rs 1.23 lakh crore in FY26.

While NII for FY26 was up 4.08% YoY at Rs 1.73  lakh crore, domestic NIM stood at 3.03% compared to 3.21% a year ago.

Total business crossed the Rs 109 trillion mark, with deposits at Rs 59.8 lakh crore and advances at Rs 49.3 lakh crore. 

The bank’s balance sheet crossed Rs 76 lakh crore. 

Dividend

The bank declared a dividend of Rs 17.35 per equity share for FY26.

While 16 May is the record date, the payment date fixed is 4 June.