SBI's net interest margin will be over 3.5% this fiscal, says MD

Kolkata, Oct. 20:State Bank of India hopes to achieve a net interest margin (NIM) of over 3.5 per cent in the second quarter as well as for the whole year. The rise in margins will be despite the pressure on interest rates, said its Managing Director and Chief Financial Officer, Mr Diwakar Gupta.

“We had given a guidance of maintaining our margins at 3.5 per cent this year. We have shown a healthy growth in NIM so far and hope to do better than what we had targeted at the beginning of the year,” Mr Gupta told newspersons on the sidelines of a banking colloquium organised by CII here on Thursday.

The bank's margins improved to 3.6 per cent (3.15 per cent) during the first quarter of current fiscal. Explaining the logic behind the expected rise in margins, Mr Gupta said, “The cost of deposits is not likely to rise over the next few months, so the margins will be higher on account of rising yields on advances.”

State Bank will desist from rising interest rates. “We want to keep rates as much under control as we can as credit is already very expensive,” Mr Gupta said.

The margins could be around 3.6 per cent this year. The rise in margins will help boost the bank's profitability, he pointed out. The bank is set to announce its second quarter results by the first week of November.

Tier-I capital

State Bank will require about Rs 7,800 crore to take its Tier-1 (equity) capital to 8 per cent by March 2012 as per Reserve Bank of India's guidelines. The Tier-1 capital was 7.6 per cent as on June 30, 2011.

Fund infusion by the Government will help the bank in raising its Tier-I capital. Moody's recently downgraded the bank's standalone rating due to poor Tier-I capital ratio and deteriorating asset quality.

Capital infusion

Replying to a query regarding the status of its proposed rights issue, Mr Gupta said that the Government had given a clear message that it would infuse funds into the bank. “Certainly funds should come in this fiscal. This can be by way of rights issue, follow-on public offer, private placement or even through the issuance of global depository receipts,” Mr Gupta said.

State Bank will need funds to the tune of Rs 17,000 crore over the next one year and Rs 26,000 crore over the next three years.

The bank's credit growth has been moderately higher than that of the industry. “We had a guidance of achieving a credit growth of 16 per cent this year and we are not revising it,” he said.