SBI sees limited impact of Trump tariff, banks on early resolution

India’s largest lender State Bank of India (SBI) sees limited impact on its books from stiff US tariffs, as it hopes the issue gets resolved soon enough to rekindle capital expenditure plans of corporates.

“Our assessment is that while the direct impact on the sectors and industries may be limited, the sooner this issue gets resolved, the better,” chairman C.S. Setty told reporters after declaring the bank’s June quarter earnings. SBI’s net profit rose 12.5% during the quarter, comfortably beating market estimates.

He said the banking sector in general, and SBI in particular, does not have significant exposure to sectors that rely on US exports. However, one also has to look at the uncertainty around how these tariffs are going to play out and how quickly it is going to be addressed.

“The global macroeconomic environment has remained fluid since June till now amid geopolitical tensions and tariff policy uncertainties that have increased,” said Setty.

US President Donald Trump has imposed a total of 50% tariff on Indian goods shipped to the US, with textiles and auto components among sectors likely to be affected the most.

Meanwhile, SBI is witnessing a slowdown in corporate loan growth, as companies explore alternative borrowing options, prepay loans, and dither on capital expenditure. Setty is keeping an eye out for tariff negotiations since the overall uncertainty is adding to the delay in revival of corporate spending.

Banks have been looking forward to a pickup in private capex in what seems like forever, with the investment heavy lifting being done by the government so far.

SBI’s corporate loan book grew 5.7% year-on-year (y-o-y), down from 15.9% in the same period last year. The state-owned bank’s total domestic loan book expanded 11.1% in the June quarter, as against 15.6% a year earlier.

“There is some shift towards market instruments,” said Setty. “We have seen that the utilization of working capital which was 62% in Q1 of FY25 has come down to 58% now. We also have seen that some of the large corporates are accessing the commercial paper market to replace working capital.”

A slack in banking system credit growth also found mention in Reserve Bank of India (RBI) governor Sanjay Malhotra’s monetary policy statement on 6 August. Malhotra said that although the rate of credit growth has slowed, overall flow of financial resources to the commercial sector increased from ₹33.9 trillion in 2023-24 to ₹34.8 trillion in 2024-25. This indicates that companies are no longer solely reliant on bank borrowings and are tapping the debt market for working capital requirements.

RBI defines the flow of financial resources to the commercial sector as the aggregate of loans from banks and non-banks, and investment by Life Insurance Corp. of India in corporate debt, apart from funds raised overseas.

According to Setty, companies tapping debt markets is on expected lines given ample liquidity at cheaper rates. As per RBI data, system liquidity has been in surplus — on an average of ₹3 trillion per day — since the June meeting of the monetary policy committee.

“I think these shifts keep happening and once the rates stabilize on the bank side, they will come back to utilization,” said Setty.

He said SBI has a strong pipeline of project finance loan proposals under discussion, apart from loans sanctioned but are yet to be disbursed. Setty expects corporate loan growth to be at least 10% in the December quarter.

The SBI chairman said companies are not yet really discussing tariff concerns with SBI. However, on a broader level, uncertainties have been present in the global scenario for the last couple of years on the back of wars and geopolitical tensions.

On Friday, the bank reported a net profit of ₹19,160 crore for the June quarter, up 12.5% over the previous year, beating estimates. Bloomberg consensus estimates of 24 analysts had pegged SBI’s net profit in the June quarter at ₹16,975 crore. The profit was, to a great extent, backed by other income in the form of treasury gains. Its other income or non-interest income grew 55.4% y-o-y to ₹17,346 crore, whereas interest income grew 5.8% y-o-y to ₹1.17 trillion.

SBI’s domestic deposits grew 11.7% y-o-y to ₹52.5 trillion in Q1 FY26. The bank is hopeful of maintaining its loan growth and deposit growth guidance of 12% and 10%, respectively, in FY26.

Like its peers, SBI’s margins have also taken a beating in the June quarter, with net interest margin — a key indicator of profitability — down 33 basis points from the previous year to 3.02%. Setty said margins were anyway expected to moderate in Q1 and Q2, but would be back to FY25 levels by Q4 of the current financial year.

Analysts sounded concerned about softening margins.

“While the pickup in deposit growth rate (even if led by term deposits) is a positive, we see the continued slide in margins remaining a concern raising questions on the sustainable level of RoA (return on assets) for the bank, once the support from lower credit costs and higher non NOI (non-operating income) subsides,” analysts at Bernstein said in a note on Friday.

Shares of SBI on NSE closed at ₹802.5 apiece, down 0.33% from its previous close, while the Nifty Bank Index was down 0.93%.