SBI Q2 Results FY26: Net Profit Surges 10% to ₹20,160 Crore on Strong Income and Improved Asset Quality

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India’s banking sector continues to show signs of stability and gradual improvement, and once again the country’s largest lender, the State Bank of India (SBI), delivered a performance in the quarter ended 30 September 2025 that merits attention. On a standalone basis, the bank reported a net profit of ₹20,160 crore, marking a nearly 10 % year-on-year increase from ₹18,331 crore in the corresponding quarter of the previous year.

Profit and Income Drivers

The key profit uplift came from multiple sources. First, the bank’s net interest income (NII) rose to ₹42,984 crore, up approximately 3.3 % year-on-year. While the growth in NII is modest, it demonstrates that the bank is still managing to expand its core interest-earning operations amidst a challenging interest-rate backdrop.

Second, non-interest income helped to bolster the bottom line. The bank recorded a strong rise in “other incomes” which includes fees, commissions, treasury gains and recoveries; in particular, the bank realised a one-time pre-tax profit of around ₹4,593 crore from the sale of a 13.18 % equity stake in Yes Bank to Sumitomo Mitsui Banking Corp. (SMBC). This exceptional gain provided an incremental boost to profits which, in effect, helped offset margin squeeze elsewhere.

Margins and Lending Growth

Despite the profit rise, margin pressures remain visible. The domestic net interest margin (NIM) of the bank came in at 3.09 % for the quarter, down 18 basis points year-on-year (from 3.27 %) but up 7 basis points sequentially from the previous quarter. The decline in margins is a consequence of competition for deposits, a higher proportion of low-yielding assets, and pressure on pricing in the lending book. However, the slight sequential improvement suggests the worst may be behind for the bank’s margin trajectory.

On the lending front, the bank achieved healthy growth in advances. Whole-bank advances increased 12.73 % year-on-year, with domestic advances up about 12.32 %. Notably, the retail segment (which includes retail personal loans, agriculture and SME) registered stronger growth: retail advances were up ~15.09 %, SME up nearly 18.78 %, agriculture ~14.23 % and personal retail ~14.09 % year-on-year. On the deposit side, total deposits rose 9.27 %, and CASA (current account & savings account) deposits rose ~8.06 % with a CASA ratio of 39.63 %. These numbers reflect the bank’s continued footing in growing retail and non-corporate lending even as large-corporate growth remains modest (corporate advances up ~7.10 % YoY).

Asset Quality & Capital Position

One of the standout positives in this quarter is the improved asset-quality metrics. The bank’s gross non-performing assets (NPAs) ratio declined to 1.73 %, down 40 basis points year-on-year, and the net NPA ratio improved to 0.42 % (down 11 bps). Fresh slippages have also moderated: for example, fresh slippages in Q2 were ₹4,754 crore compared to higher levels earlier. The provision coverage ratio (PCR) (including written-off accounts) improved marginally to ~92.29 %. On the capital adequacy front, the bank’s capital-adequacy ratio (CAR) stood at 14.62 % as of 30 September, with the CET1 ratio at 11.47 %. These metrics leave the bank with ample headroom to support growth and absorb shocks.

Strategic and Outlook Commentary

Management commentary suggests optimism around credit demand, especially in the retail, agriculture and SME segments, which is likely to sustain growth momentum. For FY26, the bank has revised its credit-growth guidance upwards to 12-14 % (up from a previous 11 %) based on improving demand and supportive policy moves (including GST rationalisation) that are expected to spur consumption and investment. The credit-to-deposit ratio stands around ~69.8% as of Q2, indicating the bank has sufficient deposit base to support growth. Also, the bank has an excess SLR (statutory liquidity ratio) portfolio of ~₹3.5 trillion implying additional liquidity that can support lending or be monetised.

In terms of margin recovery, management indicated that NIMs are expected to return towards Q4 FY25 levels (~3.22 %) in the coming quarters, provided deposit-cost pressures are contained and lending yields pick up. The one-time gain from the Yes Bank stake sale gives the bank both earnings uplift and the flexibility to invest or deploy capital for organic growth or strategic initiatives.

Challenges and Risks

While the quarter’s performance is encouraging, several challenges remain. The margin compression is a persistent drag: the decline in NIM year-on-year underscores the cost-of-funds pressure and yield compression on advances. Sustaining margin recovery will require either better asset yield pricing or further moderation of deposit costs (particularly CASA cost). Additionally, growth in large-corporate lending is modest (~7.1 %), which may limit margin-rich loan origination unless conditions improve. There is also the overhang of macro-economic uncertainty: credit demand could be sensitive to external shocks, inflation, interest-rate movements or regulatory changes. Furthermore, while asset quality is robust today, any sudden uptick in slippages (especially in stressed segments) could challenge the comfortable buffer.

Implications for Stakeholders

• For investors, the result bolsters confidence in SBI’s operational resilience. The profit beat and continued growth in retail advances and deposits signal a bank that is performing in a challenging environment. The improved asset-quality metrics reduce tail-risk.
• For depositors and borrowers, the growth in CASA and strong deposit base offer comfort on stability; for borrowers, strong lending growth means competition remains.
• For the banking sector overall, SBI’s performance suggests that the sector may be emerging from margin pressure, and the trajectory of credit growth (especially retail/SME) is picking up.
• For the economy, robust financing by the largest lender has positive implications for credit transmission and support for growth in consumption, agriculture and SMEs which are critical engines of the Indian economy.

Conclusion

In summary, the quarter ended 30 September 2025 has seen the State Bank of India achieve a 10 % rise in standalone net profit to ₹20,160 crore, supported by steady NII growth, strong non-interest income (including a one-time stake-sale gain), healthy credit growth, improved asset quality and a stable capital base. While margins continue to face pressure, early signs of sequential improvement and management guidance for recovery provide optimism. With credit-growth momentum and an improving yield environment, SBI appears well-positioned to leverage the next phase of growth in India’s banking industry—though vigilance remains necessary to guard against margin erosion, deposit-cost increases and macroeconomic headwinds.

For FY26 and beyond, the bank’s ability to sustain growth in retail/SME, improve large-corporate lending, and recover margins while keeping asset quality intact will be the key yardsticks of success. If these are achieved, SBI will not only solidify its leadership in the Indian banking space but also play a significant role in powering credit-driven growth in the broader economy.