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What is the story about?
State Bank of India beat street estimates with both the topline and net profit. The net interest margin beat expectations, driven by strong credit growth and continued asset-quality improvement. Yet the stock fell sharply by 4.5% from the day's high to the day's low of ₹961.2, soon after the second-quarter earnings were released, before recovering slightly.
That's because the operating profit was well below estimates. Rising costs and lower treasury income took a toll, although one-off gains from a stake sale in SBI Funds Management made the headline profit for the Mumbai-based lender figure look better.
The country's largest bank booked a ₹7,288 crore pre-tax gain from selling a 6.3% stake in SBI Funds Management. The company also made ₹2,410 crore, net of taxes, from selling shares in the recently concluded National Stock Exchange (NSE) IPO. However, the profit has been credited to capital reserves, not the profit and loss statement.
Regulations require all Indian banks to hold a portion of their reserves in government bonds. Compared with private banks like HDFC Bank or ICICI Bank, state-owned lenders like SBI park significantly more money in government securities, making them vulnerable to sharp swings in yields. The recent increase in government bond yields requires them to mark down the value of their investments.
SBI Q2 Results: Bittersweet
The sharp deviation between profit after tax and operating profit suggests underlying weakness. Cost pressures are visible. Operating expenses rose 9.6% year on year and 15.6% in the last three months. Cost-to-income ratio worsened to 49.82% by September 2026 from 46.71% at the end of June 2026.
While the net interest margin (NIM) from the India lending business improved to 3.11%, up from 3.08% a year ago, it was 11 basis points narrower than three months ago. 100 basis points make one percentage point.
"The good part is that loan growth is steady. What we are also observing is the controlled NPAs at this point in time, which is, frankly, I think, a very good sign that they are still not experiencing any kind of stress in the economy," Deven Choksey, Managing Director at DRChoksey Finserv Private, said.
On the positive side, credit growth continues to outpace deposit growth and the quality of lending has improved. "I think they have been showing sequential improvement every quarter on quarter on most operating metrics. Even then, if you see, the CD ratio was almost 74% in Q1," Gurmeet Chadha, Managing Partner and Chief Investment Officer (CIO) at Complete Circle, said.
The broader market view of India's banking stocks has been less enthusiastic in recent months, despite their resilient earnings and strong balance sheets. That's in part due to the withdrawal of foreign portfolio investors (FPIs).
" I think the value of subsidiaries is not really captured in the SBI. So, if you take core SBI and the value of subsidiaries, the book value comes at about ₹300 to ₹350, depending upon how you value it. If you take 1.5-1.6 times, it (implied share price) comes to about ₹1,100. So you know, fair value is actually much higher," Chaddha added. SBI shares closed at ₹970 apiece on Tuesday.
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Read more: What drove Sensex and Nifty 50 to a two-month high
That's because the operating profit was well below estimates. Rising costs and lower treasury income took a toll, although one-off gains from a stake sale in SBI Funds Management made the headline profit for the Mumbai-based lender figure look better.
The country's largest bank booked a ₹7,288 crore pre-tax gain from selling a 6.3% stake in SBI Funds Management. The company also made ₹2,410 crore, net of taxes, from selling shares in the recently concluded National Stock Exchange (NSE) IPO. However, the profit has been credited to capital reserves, not the profit and loss statement.
We were expecting around ₹17,000 crore in other income during this quarter, but it has come at around ₹11,000 crore. So maybe certain treasury loss has come into the picture due to hardening of yields. SAMEER SAWANT, RESEARCH ANALYST, MIRAE ASSET SHAREKHAN
How rising bond yields hurt SBI's operating profit?
Regulations require all Indian banks to hold a portion of their reserves in government bonds. Compared with private banks like HDFC Bank or ICICI Bank, state-owned lenders like SBI park significantly more money in government securities, making them vulnerable to sharp swings in yields. The recent increase in government bond yields requires them to mark down the value of their investments.
SBI Q2 |
Q2FY27 |
Vs Estimates |
|---|---|---|
NII |
₹49,143 crore |
3% |
Operating profit |
₹26,937 crore |
-24% |
PAT |
₹23,037.95 crore |
1% |
SBI Q2 Results: Bittersweet
The sharp deviation between profit after tax and operating profit suggests underlying weakness. Cost pressures are visible. Operating expenses rose 9.6% year on year and 15.6% in the last three months. Cost-to-income ratio worsened to 49.82% by September 2026 from 46.71% at the end of June 2026.
While the net interest margin (NIM) from the India lending business improved to 3.11%, up from 3.08% a year ago, it was 11 basis points narrower than three months ago. 100 basis points make one percentage point.
"The good part is that loan growth is steady. What we are also observing is the controlled NPAs at this point in time, which is, frankly, I think, a very good sign that they are still not experiencing any kind of stress in the economy," Deven Choksey, Managing Director at DRChoksey Finserv Private, said.
Particulars |
Q2FY27 |
YoY |
QoQ |
|---|---|---|---|
Fresh slippages (cr) |
5,227 |
+10% |
−25.8% |
Gross NPA |
1.39% |
−34 bps |
−8 bps |
Net NPA |
0.36% |
−6 bps |
−2 bps |
On the positive side, credit growth continues to outpace deposit growth and the quality of lending has improved. "I think they have been showing sequential improvement every quarter on quarter on most operating metrics. Even then, if you see, the CD ratio was almost 74% in Q1," Gurmeet Chadha, Managing Partner and Chief Investment Officer (CIO) at Complete Circle, said.
The broader market view of India's banking stocks has been less enthusiastic in recent months, despite their resilient earnings and strong balance sheets. That's in part due to the withdrawal of foreign portfolio investors (FPIs).
" I think the value of subsidiaries is not really captured in the SBI. So, if you take core SBI and the value of subsidiaries, the book value comes at about ₹300 to ₹350, depending upon how you value it. If you take 1.5-1.6 times, it (implied share price) comes to about ₹1,100. So you know, fair value is actually much higher," Chaddha added. SBI shares closed at ₹970 apiece on Tuesday.
Log in to our market page before the stock market opens tomorrow for deeper takes from brokerages and analysts.
Read more: What drove Sensex and Nifty 50 to a two-month high
