SBI Q2 preview: Yes Bank stake sale gains seen cushioning margin hit

State Bank of India (SBI) is expected to see its net profit decline for the the September quarter even as healthy loan growth and one-off treasury gains from its stake sale in Yes Bank offset pressure on margins, according to analysts.

The country's largest state-run lender is expected to post a standalone net profit of ₹17,523 crore in the quarter, down over 4% year-on-year, according to a Bloomberg analyst poll. The bank’s June-quarter bottom line stood at ₹19,160 crore. The public sector lender saw its operating profit rise 16% on-year to ₹30,544 crore in the June quarter.

“We expect operating profit to grow 6% on-year as we build NIM compression for the quarter. We are building flat net interest income (NII) decline despite 12% on-year loan growth due to a higher cost of funds and pass-through of recent rate cuts. Recent equity infusion to partly offset NIM compression. Strong treasury gains due to the recent Yes Bank stake sale,” Kotak Institutional Equities said in its pre-earnings note on 6 October.

Interest income

Brokerages expect the bank to report flat NII and consequently a 6-8 basis-point (bp) fall in NIM, reflecting rising deposit costs as competition for retail term deposits remains intense. So far in 2025, the Reserve Bank of India has cut the policy repo rate by 100bps. One basis point is one-hundredth of a percentage point.

During the June quarter, the bank’s NII was largely flat on-year at ₹41,072 crore but down 4% sequentially. Consequently, NIM also declined to 3.02% as against 3.15% in the March quarter.

Emkay Global Financial Services also echoed a similar view, expecting better sequential performance led by gains from the Yes Bank stake sale, contained loan-loss provisions, and lower operating expenses. It expects these factors to help the bank clock 1% return on assets, slightly lower than the June-quarter's 1.14%.

On 18 September, SBI announced that it had completed the divestment of about 13.18% stake in the private sector lender, Yes Bank, to Sumitomo Mitsui Banking Corp. (SMBC) of Japan for ₹8,888.97 crore. SBI now holds a 10.8% stake in the private sector bank.

While the bank’s treasury book is likely to benefit from the stake sale, which could provide a meaningful boost to non-interest income, analysts have cautioned that this is a one-off and will not offset the structural compression in margins over the coming quarters.

Asset quality

On the asset quality front, the bank’s performance is expected to remain stable with limited stress from unsecured loans, while slippages from the agricultural segment, which were elevated in the previous quarter, are expected to ease.

“Provisions are expected to decline by 7% quarter-on-quarter. Asset quality in terms of GNPA (gross non-performing assets) to improve by 6bps while credit cost is expected to fall by 4bps,” brokerage Prabhudas Lilladher said in a pre-earnings note on 7 October.

Nomura Global Markets Research expects SBI’s credit cost to remain contained at 0.5%, with GNPA improving marginally. Overall, it expects the bank’s loan and deposit growth to remain healthy.

Furthermore, with the RBI announcing several measures to enhance operational flexibility and ease of doing business for banks, analysts expect large lenders, including SBI, to benefit the most.

“Large private banks have a sizable contingent buffer to manage ECL (expected credit loss) transition; they could also benefit from flexibility in managing the form of business. Permission to fund acquisition, differentiated deposits insurance premium and withdrawal of large borrower framework may also benefit large private banks and SBI,” ICICI Securities said in a 6-October report.

Management’s commentary on the bank’s NIM outlook, deposit mobilization, and credit growth guidance for the rest of the fiscal year will remain on analysts’ radar.