Improving credit growth trajectory, steady margins positive for SBI

SBI's strong credit growth, stable NIMs, and improved asset quality drive optimism as analysts raise earnings and price targets for H2 FY26

State  Bank of India (SBI) reported good credit growth of 13 per cent year-on-year (Y-o-Y) and beat consensus estimates on net interest income (NII), current account savings account (Casa) deposits and fees. On a sequential basis, core net interest margins (NIMs) rose 5 basis points (bps), loans grew 4 per cent and fees 12 per cent. 

Core return on assets (RoA) stood at 1.05 per cent while the reported RoA was 1.17 per cent. The core pre-provision operating profit (PPOP) grew 2 per cent Q-o-Q and 9 per cent Y-o-Y. While asset quality improved, slippages and non-performing loans (NPL) declined. 

The FY26 loan growth guidance was revised up from 12–13 per cent to 12-14 per cent along with guidance that NIM will be above 3 per cent in H2FY26. The reported Q2FY26 net profit was ₹20,160 crore, up 10 per cent Y-o-Y, supported by an exceptional gain of ₹4,590 crore from divestment of 13.18 per cent stake in Yes Bank. 

Adjusted net profit was ₹16,700 crore, down 9 per cent Y-o-Y and down 13 per cent Q-o-Q. NII was up 3.3 per cent Y-o-Y to ₹42,980 crore and NIM stood at 2.97 per cent. The loan book grew 13 per cent Y-o-Y (up 4 per cent Q-o-Q), while deposits grew 9.3 per cent Y-o-Y (2.2 per cent Q-o-Q). The Casa ratio stood at 39.6 per cent. PPoP declined 7 per cent Y-o-Y to ₹27,300 crore. Slippages moderated to ₹4,998 crore (versus ₹8,400 crore in Q1FY26). 

Gross non-performing asset (gross NPA) ratio improved 10 bps Q-o-Q to 1.73 per cent. Net NPA reduced 5 basis points Q-o-Q to 0.42 per cent and the provision coverage ratio (PCR) increased to 75.8 per cent. 

Other income stood flat Y-o-Y and declined 11.6 per cent Q-o-Q to ₹15,300 crore as treasury gains (excluding stake sale) normalised at ₹2,880 crore versus ₹6,330 crore in Q1FY26. Core fee income grew at 25.4 per cent Y-o-Y. Operating expenditure grew 12.3 per cent Y-o-Y to ₹30,990 crore led by goods and services (GST), software, and training expenses. 

SBI saw 1,500 new recruits. The ongoing Project Saral aims to simplify and centralise processes through artificial intelligence (AI)-enabled digital tools. Advances grew at 13 per cent Y-o-Y (4 per cent Q-o-Q) with retail up 14 per cent Y-o-Y, and SME rising 19 per cent Y-o-Y. 

Corporate growth was 7 per cent Y-o-Y and Xpress credit (a loan scheme for salaried persons) grew 1.6 per cent Q-o-Q. The loan book is 29 per cent MCLR-linked with 30 per cent repo-linked and 22 per cent fixed-rate and T-Bills at 15 per cent. 

Provisions increased 20 per cent Y-o-Y to ₹5,400 crore. Deposits grew 9.3 per cent Y-o-Y (2.2 per cent Q-o-Q). 

Credit deposit ratio improved to 78 per cent (76.7 per cent in Q1FY26). Credit cost moderated to 0.39 per cent.  

SBI Cards reported a net profit of ₹450 crore (up 10 per cent Y-o-Y and down 20 per cent Q-o-Q). SBI Life’s net profit declined 6.4 per cent Y-o-Y (down 17 per cent Q-o-Q) to ₹495 crore. 

Net profit of SBI AMC grew 7 per cent Y-o-Y (declined 12 per cent Q-o-Q) to ₹740 crore. 

The company is mulling listing of SBI AMC and SBI General. 

SBI reiterated NIM guidance of over 3 per cent with RoA held at 1.04 per cent, (excluding stake sales). 

The extraordinary gain from Yes Bank stake sale was about ₹4,500 crore before tax and ₹3,386 crore net of tax. 

SBI will not apply mark-to-market on residual Yes Bank stake. 

The management expects better performance in H2FY26, with liquidity from cash reserve ratio (CRR) cuts. SBI has raised ₹25,000 crore of equity cap­ital through QIP of ₹1.1 trillion in Q2FY26. The Casa market share is at 23 per cent, with deposits market share above 22 per cent. SBI expects corporate credit growth of at least 10 per cent in H2FY26. 

It has a ₹7 trillion corporate pipeline with 50 per cent already sanctioned. Home loan growth is expected at 15-16 per cent Y-o-Y. Gold loans are showing improvement. 

Deposit rates have stabilised, and repricing will be done only if another rate cut occurs. 

The bank continues to guide for ₹2,000 crore advanced under collection account recoveries per quarter.