State Bank of India’s fee income growth Q2 of FY26 stands out as the best even among all the leading private sector banks that do well on this parameter. SBI’s fee income grew 25% year-on-year (y-o-y) to ₹8,574 crore, much higher than the second-best growth of 10% posted by ICICI Bank.
The growth rate assumes even more significance as most of the fees, excluding third-party distribution products, are generally linked to processing fees on advances. So, it is impressive that the fee income growth rate outpaced the 13% growth in advances.
SBI’s net interest margin (NIM) benefited by 2 bps quarter-on-quarter (q-o-q) due to interest income on equity funds worth ₹25,000 crore raised through QIP in July. Also, there was a small component of interest on income tax refund that had a positive impact of 2 bps q-o-q.
After adjusting for these factors, there was a 3 bps increase q-o-q in NIM to 2.93%. While the increase in NIM may appear small, it needs to be seen in the context of the pressure on yields on advances owing to the cumulative repo rate reduction of 50 bps by the Reserve Bank of India since February. The guidance of 3%-plus NIM for the rest of the year is encouraging, too.
The combination of healthy fee income and net interest income ensured 6% year-on-year growth in core net income excluding treasury gains, to ₹55,434 crore. But this good show was spoiled by faster growth in operating expenses (opex) at 12% to ₹30,999 crore.
The management attributed the sharp rise in opex to the increase in rental and mobile banking costs. Consequently, core pre-provisioning operating profit (PPoP) fell marginally by 1% to ₹24,435 crore.
Total assets
Asset quality continued to improve as the slippage ratio was flat y-o-y and declined by 15 bps q-o-q to 0.6%. Though SBI’s total business–the sum of advances and deposits–surpassed ₹100 trillion, the more relevant metric for investors is total assets. That is because total assets when multiplied by targeted return on assets (RoA) gives a potential net profit figure.
SBI is likely to end FY26 with almost ₹75 trillion in total assets. If it achieves 1.1% RoA for FY26, based on the average of assets at FY25-end and FY26-end worth ₹70 trillion, it implies a net profit of about ₹77,000 crore.
SBI’s current market capitalization is ₹8.8 trillion, which translates to ₹6.6 trillion net of the value of its stake in subsidiary entities worth ₹2 trillion. Thus, SBI’s net market capitalization-to-net-profit or P/E ratio comes to 9x for FY26, which is far lower than 18x for HDFC Bank based on estimates of Motilal Oswal Financial Services, again adjusted for value of the stake in subsidiaries.
The P/E ratio has to be seen in the context of growth. Private banks would quote at premium valuations to public sector banks such as SBI in the past because their balance sheets or total assets growth was faster. So, investors neither questioned the high valuations nor the low dividend payout ratio of private sector banks.
But the balance sheet growth rate of SBI and HDFC Bank, the largest private sector bank, is likely to converge at about 10% for FY26. In such a scenario, it would not be a surprise if investor preference continues to shift towards SBI, the leading public sector bank, considering its much cheaper valuation.
