SBI Q2 Results: Narrowing Margins and Lower Treasury Gains Could Weigh on Profit and NII

SBI Q2 Preview: Profit, NII Likely to Slip as Margins Narrow and Treasury Gains Ease

State Bank of India (SBI), the country’s largest public-sector lender, is expected to deliver a muted set of numbers for the September quarter (Q2 FY26) as margin pressures and lower treasury gains weigh on its profitability. The bank will announce its second-quarter financial results on November 4, 2025, and analysts anticipate a year-on-year decline in both profit and net interest income (NII).

According to brokerage estimates, SBI’s NII is projected to fall 2% YoY to Rs 40,757 crore in Q2FY26, compared to Rs 41,620 crore in the same period last year. The net profit is expected to decline by around 10% YoY to Rs 16,569 crore, versus Rs 18,331 crore in Q2FY25. Despite the earnings moderation, analysts remain optimistic about SBI’s long-term fundamentals, citing improving asset quality and steady loan growth.

Margins Under Pressure as Funding Costs Rise

One of the key factors impacting SBI’s quarterly performance is margin compression. With deposit costs continuing to rise due to aggressive competition for funds, the bank’s net interest margin (NIM) is expected to witness a mild moderation in Q2.

Analysts at Axis Securities noted that NIM pressure could weigh on overall NII growth, given that the repricing of deposits has outpaced lending rate adjustments in recent months. This reflects an industry-wide trend, as banks are facing tighter spreads amid the Reserve Bank of India’s policy normalization and liquidity adjustments.

While SBI has maintained a strong loan book, its profitability is expected to soften in the short term as higher cost of funds limits margin expansion. However, the bank’s diversified asset base and growing retail segment may help cushion the impact.

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Lower Treasury Gains Drag Earnings

SBI’s treasury performance is also expected to contribute to the earnings decline this quarter. The relatively stable bond yields during the September quarter resulted in limited opportunities for trading profits, leading to subdued treasury income compared to the previous year.

Brokerages have highlighted that treasury gains were one of the key contributors to SBI’s strong earnings in earlier quarters, but that tailwind has weakened. As a result, the overall profitability for Q2FY26 may come under pressure even though operational metrics remain healthy.

Loan Growth Remains Steady Despite Challenges

Despite margin compression, SBI’s business momentum remains solid. Analysts at Motilal Oswal Financial Services project loan growth at 11% year-on-year for Q2FY26, supported by healthy credit demand across retail, corporate, and SME segments.

Deposit growth is likely to remain robust at around 9% YoY, reflecting SBI’s strong franchise and wide network. The bank continues to dominate India’s credit landscape, with consistent growth in home loans, personal loans, and infrastructure financing.

The steady expansion in both advances and deposits indicates that SBI’s operational fundamentals remain strong, even as near-term profitability moderates.

Asset Quality to Show Further Improvement

One of the positives in SBI’s Q2FY26 earnings is expected to be continued improvement in asset quality. Analysts forecast a decline in the bank’s gross non-performing asset (GNPA) ratio to 1.8%, compared to 2.1% in the same quarter last year.

The net NPA ratio is likely to remain steady at 0.5%, signaling strong risk management and recoveries. SBI’s proactive provisioning strategy and recoveries from legacy stressed assets have helped strengthen its balance sheet.

Analysts believe that a stable asset quality outlook, along with improving credit discipline across sectors, will continue to support investor confidence in the coming quarters.

Investors’ Focus: Margins, Loan Growth, and Asset Quality

Market participants will closely watch SBI’s loan growth trajectory, deposit accretion trends, and net interest margin (NIM) movement when the bank announces its results. These indicators will provide insights into how effectively SBI is balancing growth and profitability amid a shifting interest rate environment.

Investors will also monitor updates on credit costs, fee income, and the bank’s digital transformation initiatives, which are key to sustaining long-term earnings growth.

Despite near-term headwinds, analysts believe SBI remains well positioned to benefit from India’s ongoing economic expansion, government-led infrastructure push, and rising retail credit demand.

Outlook: Earnings Dip Short-Term, Long-Term Growth Intact

While SBI’s Q2FY26 results are expected to show softer earnings due to margin pressure and reduced treasury gains, the broader outlook for the bank remains stable. The lender’s focus on improving operational efficiency, maintaining asset quality, and expanding its retail and SME portfolios will likely drive sustainable profitability in the coming quarters.

Moreover, analysts highlight that once the funding cost cycle stabilizes, SBI’s margins are expected to gradually recover, supported by strong credit demand and improved lending spreads.

As India’s banking sector continues to benefit from strong economic fundamentals and rising credit penetration, State Bank of India remains one of the most attractive long-term bets in the PSU banking space.

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