State Bank of India has clarified that its recent $10.9 billion FCNR(B) deposit influx will not hurt profitability. Chairman CS Setty plans to use these lower-cost foreign funds to replace expensive domestic deposits, aiming to keep Net Interest Margins above 3% for the fiscal year.
State Bank of India (SBI) has addressed concerns regarding its recent surge in foreign currency deposits, assuring investors that the influx will not negatively impact its profitability. Chairman CS Setty confirmed that the bank successfully mobilized approximately $10.9 billion through the FCNR(B) swap facility, a figure that exceeded initial expectations. This large inflow of liquidity raised questions about whether it would lower the bank's profit margins, known as Net Interest Margins (NIM), which represent the difference between what a bank earns on loans and what it pays on deposits.
Strategic Use of Foreign Funds
The management's strategy to maintain margins above 3% for the full fiscal year 2027 hinges on how it utilizes these foreign funds. Instead of letting the liquidity sit idle or using it for low-return assets, the bank is using these cheaper foreign currency deposits to pay off more expensive domestic deposits. By replacing high-cost domestic funding with lower-cost foreign capital, SBI aims to lower its overall cost of funds. This proactive approach is intended to shield the bank's profitability from interest rate changes and keep its lending operations efficient.
The bank reported a strong performance for the second quarter of fiscal year 2027, with a standalone net profit of ₹23,038 crore, reflecting a 14% increase compared to the same period last year. Domestic NIMs were reported at 3.11%, an improvement of 11 basis points compared to the previous quarter. On the trading front, SBI shares closed at ₹970.25 on the National Stock Exchange on November 3, 2026, marking a decline of approximately 1.7%.
Financial Outlook and Risks
Looking ahead, the bank is guiding for credit growth in the range of 14% to 15% and deposit growth between 10% and 11% for the current fiscal year. While the management remains confident, the bank faces specific challenges that investors should monitor. A primary concern for the entire banking sector is the intense competition for retail deposits. If this competition forces SBI to raise interest rates on savings accounts, it could put pressure on the bank's ability to keep funding costs low.
Additionally, the bank's performance remains sensitive to the Reserve Bank of India’s monetary policy trajectory. Changes in interest rates can affect how quickly the bank can reprice its loans. Other factors, such as geopolitical tensions and their impact on energy prices and inflation, also remain key variables that could influence the bank's treasury income and overall cost structure. For now, the primary monitorables for shareholders include the actual pace of deposit and credit growth, the ability to sustain NIM levels above the 3% target, and whether the bank can continue to successfully manage its funding costs in a competitive interest rate environment.