State Bank of India Q2 FY2026 Concall Summary

Key Takeaways

• NIM resilience despite rate cuts: Domestic NIM rose 7 bps QoQ to 3.09%, driven by disciplined liability management and staying away from irrationally priced wholesale deposits, even as asset yields fell 100 bps.
• Core profit masked by one-off gain: A ₹4,593 cr exceptional gain from the Yes Bank stake sale obscured a substantial drop in operating and net profit in a quarter where treasury income halved.
• Credit growth is a H2 story: H1 credit growth was a muted 3.88% (annualised ~12%) as large repayments from IPOs and bond conversions weighed; a ₹7 lakh cr corporate pipeline and 10% corporate growth target underpin the second-half bet.
• The simplification pivot is real: Project SARAL and YONO 2.0 signal a structural push to rewire operations for scale, with the bank targeting a balance-sheet doubling every six years.
• What to watch next quarter: Whether the ₹7 lakh cr corporate pipeline converts into disbursements, the trajectory of NIM if a December rate cut materialises, and any clarity on the subsidiary listing timeline.

Margin & Liability Management

• NIM walk: The 7 bps QoQ improvement to 3.09% was achieved through deposit repricing, a reduction in cost of borrowings, and a focus on improving daily average balances in CA and SA accounts, despite a 100 bps reduction in asset-side interest rates.
• Wholesale deposit discipline: The bank deliberately stayed away from wholesale deposits where market pricing was "berserk," choosing to protect margins over chasing volume.
• Deposit rate outlook: Rates have stabilised; further recalibration will only occur if there is a Repo rate action. Fixed deposit repricing still has another 1–2 quarters to run on the existing stock, providing a tailwind.
• CASA engine: Savings Bank balances improved after a large-scale campaign nudging staff to ensure accounts are funded at opening, with 70–75% now funded within 45 days. Current Account growth was driven by a focus on Business Current Accounts and transaction banking hubs, gaining 185 bps of market share.
• Borrowing cost tailwind: Interest on borrowings fell because liquidity was in surplus throughout the quarter; borrowings were minimal, keeping the price low.
• NIM guidance: Management reiterated that NIM will remain above 3% in Q3 and Q4, assuming no rate cut in December, and that the long-term through-the-cycle NIM above 3% still holds.

Setty: "where the market was going berserk in terms of pricing those deposits, we stayed away from there."

Profitability & Exceptional Items

• Treasury income halved: Trading profit in Q2 was roughly 50% of Q1 because Q1 benefited from RBI OMO and switch operations that were not available in Q2. However, the AFS reserve increased QoQ with no MTM loss, and management is reasonably confident a large portion of Q2's trading performance can be repeated in Q3.
• Yes Bank stake sale: A standalone exceptional gain of ₹4,593 cr was booked from the sale, routed through the P&L as per RBI guidelines. The unrealised residual stake is not marked-to-market because SBI retains significant control via a board seat.
• Consolidated discrepancy: Consolidated exceptional income was only ₹3,000 cr versus the standalone ₹4,593 cr, implying a subsidiary or associate booked an exceptional loss. Management did not explain the gap during the call, stating they would clarify later.
• Operating expenses: Miscellaneous operating expenses appeared higher QoQ mainly due to GST on expenses rising to ₹1,180 cr (vs ₹662 cr in Q2 FY25 and ₹588 cr in Q1 FY26), which is recovered with input tax credit on both sides.
• Standard asset provisioning: A higher quantum this quarter was due to DCCO extension for two accounts requiring an additional provision of ~₹750 cr, partially offset by a ₹200 cr write-back from DCCO achievement, netting to ~₹550 cr. No accelerated provisioning was taken.

Setty: "I think what we have focused on, that how do we balance your resource cost... your NIM uptick is basically on account of that, despite that 100 basis point reduction in the interest rates and asset side."

Credit Growth & the Corporate Pipeline

• H1 drag: Credit growth was only 3.88% in H1 (annualised ~12%) because Q1 and Q2 saw large loan repayments from IPO proceeds, equity raised used to repay loans, conversions to bonds (e.g., airports), and large payments by government entities receiving cash upfront.
• Corporate turnaround: Corporate credit growth reversed its negative trend and posted 7.1% in Q2. Management has visibility of at least reaching 10% corporate credit growth in the next two quarters.
• Pipeline: The corporate credit pipeline is very robust at ~₹7 lakh cr, predominantly private sector, spanning working capital, term loans, and new projects. Part will convert this year, with spillover to next year for some projects.
• Private CapEx: Management expressed positivity on private CapEx, not necessarily across all sectors but most sectors.
• Home loans: Growth of 14–15% stability is expected to be achieved as the portfolio grows.
• Xpress Credit: Growth was expected to reach double digits, but some movement is happening from Xpress Credit to secured Gold loans because the gold loan amount is higher due to gold value and the interest rate is lower. Sanctions and disbursements remain very significant; it is a high-churning product.
• International book: Growth is opportunistic; if pricing is not attractive, the bank ramps down. The 15% growth rate in rupee terms is due to rupee depreciation; dollar growth is 8.7%. The bank is comfortable with the international book at about 15% of the credit portfolio.

Asset Quality & ECL Preparedness

• Recovery & upgradation: The combined upgradation and recovery figure appears lower versus the previous quarter because slippage in the previous quarter was much higher; on a comparable basis, this number is better.
• AUCA recovery: Achieved ₹2,400 cr versus guidance of ₹2,000 cr per quarter; the ₹2,000 cr quarterly guidance continues.
• Written-off account recoveries: Most recovery went directly into the P&L, not much apportioned into interest income. The recovery rate is likely around 8%, down from ~10% as security values decline.
• Xpress Credit GNPA: Not showing a sharp rise; quarter-to-quarter it has come down; no major concern in absolute terms as the portfolio denominator increases.
• ECL implementation: The bank will wait for final guidelines. The impact on the balance sheet would be limited because of the long road map: assessment on 1 April 2027, with time up to 31 March 2031 to take the impact. SBI will utilise the 4-year road map to ensure the balance sheet is not impacted in one go.
• ECL mitigation: Management believes the impact can be reduced by strengthening collection mechanisms. Today, 70% of retail collections happen automatically via sweeping; focus is on the remaining 30% where delays happen. The bank is presenting to the regulator that frequent rollbacks of SMA 1 and 2 do not require such high flow rates on ECL, but it is too premature to talk about impact.

Setty: "We will wait for the final guidelines, to come to you what would be the impact and how we would like to handle it. As I mentioned, whatever is the impact, we are going to take that 4-year road map which is given to us and to ensure that the balance sheet is not impacted in one go."

Strategic Initiatives: Project SARAL & Digital

• Project SARAL: Launched on 31st July 2025, a complete revamp of operational processes in retail banking with four elements: identify and simplify a process; automate it if possible; centralise it if possible; outsource it if it can be outsourced. This is the new paradigm for scaling as the bank targets doubling its balance sheet every six years.
• SARAL outcomes: The primary aim is to reduce drudgery at branches, enabling a "Digital First, Customer First" positioning with a human touch. Definite outcomes on productivity and cost reduction are defined but not being disclosed yet. The first drop is expected 1st April 2026.
• Global Trade Finance Centres: Already moved from 17 trade finance processing centres to two completely digital global trade finance centres in Calcutta and Hyderabad, handling global trade finance across the country. This is the beginning of the centralisation aspect.
• YONO 2.0: The bank will "shortly launch" the next version of the YONO platform, described as a leap forward in digital banking with state-of-the-art journey designs and supporting tech architecture.
• Tab Banking: Launched on 1st July 2025 initially for Corporate Salary Package customer onboarding; onboarding takes 5–7 minutes. Now also started for Current Accounts.
• Talent & training: Undertook the largest technical recruitment of 1,500 people from colleges, with a completely internally created training module. Launched the SPARK digital training platform providing online training, creating a skill inventory, and using AI extensively to offer training modules.

Setty: "When you are looking for doubling your balance sheet every 6 years, the scale what we have, this scale requires out-of-the box thinking and this is what we are going to do through the project SARAL."

Fee Income & Other Revenue Lines

• Core fee growth: Core fee growth of 25% and remittance/processing fee growth of 30–31% was purely volume-driven, mainly from debit card spends and interchange fees, not fee structure changes. Card issuance and spends have gone up, though sustainability of the interchange fee uptick is uncertain.
• Broad-based performance: 20%+ fee income growth was driven by government business, cross-sell, and loan processing charges, which are widespread across retail segments, not one-off or bulky, though debit card interchange fee remains uncertain.
• Interchange fee uncertainty: Debit card interchange fee is the only uncertain line in the fee income outlook; most other income streams appear stable.
• Products per customer: The target is to move from ~3.5 to 5 products per customer, leveraging the "One SBI" conglomerate value to provide the gamut of services manufactured by the group to any customer walking into an SBI branch.

Capital, Subsidiaries & Valuation

• QIP: Raised ₹25,000 cr equity capital via qualified institutional placement, the largest ever QIP offering in India, oversubscribed 4.5x with a demand book exceeding ₹1.1 trillion.
• Subsidiary listing: SBI AMC and SBI General are the right candidates for listing; the bank is serious and would soon be working on it. Respective boards will decide timing and quantum. Neither the companies nor the parent require capital at this juncture.
• Valuation disconnect: Management is confident that SBI's valuations will eventually align with fundamental and operational metrics, the institutionalised nature of the business, and market leadership in the coming years.
• M&A financing: Current guidelines are draft; the bank is setting up teams to be ready when final guidelines are released. SBI has been doing outbound M&A financing for some time.
• Capital market lending: SBI has underutilised room on capital market exposure; will assess its own risk appetite. Product development will be on a self-consuming platform and requires end-to-end digital capability before moving.

Setty: "Although the current valuations of SBI are a conundrum, considering our return on equity and growth metrics, we are confident that they will eventually align with our fundamental and operational metrics, the institutionalized nature of our business and our market leadership in the coming years."

Guidance & Commitments

Key Metrics