SBI narrows net interest margin gap with HDFC Bank

what happened

State Bank of India is gradually closing the distance to HDFC Bank on one of the key profitability measures. Data analysed by Mint shows that the difference between the net interest margins of India's largest state-run and largest private lenders shrank from 106 to 26 basis points between FY21 and Q2 FY27. HDFC Bank's margin stood at 3.16% in Q2 FY27, while SBI reported 2.9%.

Most of the narrowing reflects HDFC Bank's weaker margin, which fell 94 bps, compared with a 14 bps decline at SBI. After HDFC Bank absorbed its former parent in 2023, its margin dropped from above 4% to 3.53% in FY24. Banks across the sector face margin pressure from foreign-currency non-resident deposits.

SBI expects margins above 3% in the coming quarters. Chairman C.S. Setty said the RBI's 25 bps rate hike in October offers a tailwind, and HDFC Bank should also benefit, since about 70% of its loan book is linked to floating rates.

why it matters

For investors, the story shows that digital investment and efficiency gains can partly offset margin compression. SBI's profit per employee rose from Rs 8.3 lakh to Rs 32.65 lakh in FY26, while HDFC Bank's rose from Rs 25.9 lakh to Rs 35.4 lakh. Future performance will depend on how deposits are repriced and on the pace of loan growth.

market impact

Indian banks: margin gap shifts and RBI rate hike shape the outlook for SBI and HDFC Bank

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