SBI’s Q2 FY26 earnings show growth, with net profit boosted by stake sales in Yes Bank despite a decline in core profitability.
The bank’s net profit rose 10 percent year-on-year (yoy). However, this includes the gain of ₹3,386 crore (after tax) from the sale of 13 per cent stake in Yes Bank.
Excluding this gain, net profit fell by 8.5 percent. Nevertheless, the bank’s performance is without major negative surprises and is in line with the price.
P&L breakdown
The decline in profit is largely due to the deterioration in the net interest margin (NIM) and the decline in income from government bonds, which are part of other income.
Banks have been in the process of communicating RBI’s repo rate cut of 100 basis points since February. Due to the leading effect of the transmission of interest rate cuts on loans and term deposits respectively, NIMs were expected to decline in the second quarter and even reach a record low in some banks.
SBI’s NIM for the second quarter of FY26 was 2.97 per cent, compared to 3.14 per cent in the second quarter of FY25. Thus, net interest income rose by only 3.3 per cent despite a 12.7 per cent growth in advances.
Excluding Yes Bank profits, other income remained stable, largely due to a 38 percent decline in government bond income.
Given the rise in government bond yields in the last quarter and the absence of RBI’s open market operations auctions, this is in line with expectations. However, commission income (part of other income) grew by a strong 25.5 percent.
Considering these factors, operating profit before provisions fell by 6.8 percent. Credit costs fell to 0.39 percent of average advances, compared to 0.47 percent in the first quarter of FY26 and 0.38 percent in the second quarter of FY25.
As a result, return on assets, excluding Yes Bank’s profits, stood at 1 percent, compared to 1.17 percent in the second quarter of FY25 and 1.14 percent in the first quarter of FY26.
Outlook
On a sequential basis, NIM improved by 7 basis points in the second quarter of FY26. Assuming no further rate cuts, tailwinds from CRR (cash reserve ratio) reduction and deposits yet to be revised, meeting the 3 percent NIM target should not be a problem.
Management has targeted credit growth of 12-14 percent for FY26.
In our August 10, 2025, edition of bl.portfolio, we had recommended investors buy the stock when it was trading at ₹805. Since then it has risen 19 percent. Long-term investors can continue to hold the shares.
Published on November 4, 2025
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