State Bank of India's Q2 FY26 Performance: Record Fee Income Growth, NIM Improvement, and Attractive Valuation

State Bank of India (SBI) has showcased an impressive financial performance for the second quarter of fiscal year 2026, highlighted by a substantial 25% year-on-year growth in its fee income, reaching ₹8,574 crore. This growth rate significantly surpasses that of leading private sector banks, with ICICI Bank posting a 10% growth. Notably, SBI's fee income growth outpaced its 13% growth in advances, with most fees being linked to processing on advances. The bank's Net Interest Margin (NIM) saw a beneficial increase of 2 basis points quarter-on-quarter due to interest income from equity funds raised via a Qualified Institutional Placement (QIP) worth ₹25,000 crore and another 2 basis points from an income tax refund. After adjusting for these one-off items, the NIM rose by 3 basis points to 2.93%, demonstrating resilience against yield pressures caused by the Reserve Bank of India's repo rate reductions. SBI has also provided a positive outlook, guiding for a NIM above 3% for the remainder of the year. Core net income, excluding treasury gains, grew by 6% year-on-year to ₹55,434 crore, driven by healthy fee and net interest income. However, this was partially offset by a 12% rise in operating expenses to ₹30,999 crore, attributed to increased rental and mobile banking costs. Consequently, core pre-provisioning operating profit (PPoP) saw a marginal 1% decline to ₹24,435 crore. Asset quality continues to improve, with the slippage ratio remaining flat year-on-year and declining 15 basis points quarter-on-quarter to 0.6%. SBI's total business crossed ₹100 trillion, with total assets projected to reach ₹75 trillion by FY26. Based on a projected 1.1% Return on Assets (RoA), net profit could reach approximately ₹77,000 crore for FY26. An important insight for investors is SBI's valuation. With a market capitalization of ₹8.8 trillion, its Price-to-Earnings (P/E) ratio for FY26 is estimated at 9x (adjusted for subsidiary stake value), significantly lower than HDFC Bank's estimated 18x. As the balance sheet growth rates of SBI and HDFC Bank are expected to converge around 10% for FY26, SBI's cheaper valuation may attract greater investor preference. Impact This news indicates strong operational performance and financial health for SBI, suggesting potential for stock price appreciation. The comparison with private sector banks highlights SBI's competitive position and attractive valuation, which could lead to a re-evaluation by investors. The convergence of growth rates makes public sector banks like SBI more appealing. Rating: 8/10.

Difficult terms: Fee income: Income generated by a bank from services provided, such as processing fees, account maintenance, and distribution of third-party products. Year-on-year (y-o-y): A comparison of financial data from one period to the same period in the previous year. Quarter-on-quarter (q-o-q): A comparison of financial data from one quarter to the previous quarter. Net Interest Margin (NIM): A profitability ratio that measures the difference between the interest income generated by a bank and the interest it pays out, relative to its interest-earning assets. Qualified Institutional Placement (QIP): A method by which listed companies can raise capital by issuing equity shares or convertible securities to qualified institutional buyers. Advances: Loans and other credit facilities provided by a bank to its customers. Reserve Bank of India (RBI): India's central bank, responsible for monetary policy and regulation of the banking system. Repo rate: The interest rate at which the RBI lends money to commercial banks, often used as a benchmark for lending rates. Core net income: Net income derived from the bank's primary operations, excluding gains or losses from investments or extraordinary items. Treasury gains: Profits made from trading in financial instruments like bonds, currencies, or derivatives. Operating expenses (opex): Costs incurred by a company in its normal day-to-day business operations, such as salaries, rent, and marketing. Pre-provisioning operating profit (PPoP): A measure of a bank's operating profit before accounting for loan loss provisions and taxes. It indicates the bank's core profitability before considering potential bad loans. Slippage ratio: The ratio of new non-performing assets (NPAs) to total advances. It indicates the quality of new loans that have turned bad. Deposits: Funds held by a bank on behalf of its customers. Total Assets: The total value of all assets owned by a company, including cash, loans, investments, and property. Return on Assets (RoA): A profitability ratio that indicates how efficiently a company is using its assets to generate profits. It is calculated by dividing net income by total assets. Market capitalization: The total market value of a company's outstanding shares of stock. Price-to-Earnings (P/E) ratio: A valuation ratio that compares a company's stock price to its earnings per share. It indicates how much investors are willing to pay for each dollar of earnings. Subsidiaries: Companies controlled by a parent company. Public Sector Banks (PSBs): Banks that are majority-owned by the government.