Investors on Dalal Street were keen to see how State Bank of India (SBI), the largest bank in the country, would manage the negative headwinds for various operational factors in the September 2025 quarter – pressure on net interest margins (NIMs), sluggish loan growth and provisioning for bad loans.
And that’s because even for well-run private sector banks, like Axis Bank, higher provisioning had resulted in its net profit at Rs 5,089 crore in the September 2025 quarter, a fall of nearly 26% y-o-y.
The great margin squeeze
For a key operational factor, SBI’s domestic NIM was 3.09 % in the September 2025 quarter vis-à-vis 3.27% a year earlier.
Earlier, HDFC Bank , the largest private sector bank, had highlighted its NIM on interest earning assets was 3.4 % on total assets in the September 2025 quarter vis-à-vis 3.7% a year earlier.
Smaller rival, Kotak Mahindra Bank’s net interest margin (NIM) was 4.54 % in the second quarter of FY26 vis-à-vis 4.91% a year earlier.
And IndusInd Bank had NIM of 3.32% in the September 2025 quarter vis-à-vis 4.08% a year earlier.
The central bank had cut repo rates in its meeting in early June 2025, and while interest rates on bank loans / credit facilities have come down, interest rates on deposits with the bank come down with a lag. This has created a temporary pressure on NIMs.
Meanwhile, for another key operational parameter, credit growth, SBI’s advances grew 13 % y-o-y to Rs 43.6 lakh crore in the second quarter of FY26, and it has highlighted strong demand for SME and agri loans.
For HDFC Bank, its advances at the end of the September 2025 quarter were Rs 27.46 lakh crore, a growth of 10%. HDFC Bank’s advances to deposit ratio has been hovering well over 90% in the merged entity and it has been cautious in growing its loan book for several quarters.
Kotak Mahindra Bank’s standalone advances grew nearly 15.8% y-o-y to Rs 4.62 lakh crore in the September 2025 quarter, and the bank has highlighted strong demand for home loans and loans against property along with consumer durable loans.
And IndusInd Bank’s advances fell nearly 9% y-o-y to Rs 3.25 lakh crore at the end of the September 2025 quarter. The new MD and CEO of IndusInd Bank, Rajiv Anand, in a press release has highlighted that they are being cautious on microfinance disbursement. Anand has assumed office in late August 2025.
The big split: How provisions decided the winners
SBI’s provisions for non-performing assets were Rs 4,132 crore in the September 2025 quarter, a rise of nearly 13.8% on a y-o-y basis, and the bank has highlighted additional provisioning it has made related to stressed assets. SBI has highlighted provision coverage ratio (PCR) of 75.79% at the end of the September 2025 quarter, well above regulatory requirements related to NPAs.
Its percentage of net NPAs was 0.42% in the second quarter of FY26 vis-à-vis 0.53% a year earlier.
SBI also saw its employee costs jump 12.1 % y-o-y to Rs 16,605 crore in the September 2025 quarter. However, it had an exceptional gain of Rs 4,593.2 crore in the second quarter of FY26 related to the divestment of its 13.18% stake in Yes Bank.
As a result, SBI’s standalone net profit rose 10% y-o-y to Rs 20,159.7 crore in the second quarter of FY26. This includes a significant one time gain.
HDFC Bank had also made provisioning to the tune of Rs 3,500 crore in the September 2025 quarter vis-à-vis Rs 2,700 crore a year earlier. HDFC Bank in its investor presentation had pointed out to floating and general provisions it has made in the September 2025 quarter, to explain the above.
Its % of net NPAs to net advances was 0.42% in the September 2025 quarter vis-à-vis 0.41% a year earlier. Higher provisioning resulted in HDFC Bank’s standalone net profit rising only 10.8% y-o-y to Rs 18,641.3 crore in the second quarter of FY 26.
Kotak Mahindra Bank has made provisions of Rs 947.4 crore in the September 2025 quarter, a rise of nearly 43.5% on a y-o-y basis. A rise in provisions for Kotak Mahindra Bank is understood to be related to provisions on applicable Alternate Investments Funds (AIF) Investments pursuant to various RBI circulars.
Its % of net NPA to net advances was 0.32 % in the September 2025 quarter vis-à-vis 0.43 % a year earlier. However, higher provisioning resulted in Kotak Mahindra Bank’s standalone net profit declining nearly 2.7 % y-o-y to Rs 3,253.3 crore in the September 2025 quarter.
And IndusInd has also seen a sharp jump in its provisions – it was Rs 2,622.38 crore in the September 2025 quarter vis-à-vis Rs 1,820 crore a year earlier. Its net NPA was 1.04% in the second quarter of FY26 vis-à-vis 0.64 % a year earlier.
The sharp jump in provisions had resulted in IndusInd Bank reporting a standalone net loss of Rs 444.8 crore in the September 2025 quarter vis-à-vis a net profit of Rs 1,325.5 crore a year earlier.
Efficiency and RoA: Who leads the pack?
SBI’s return on assets (annualised) was 1.17% in the September 2025 quarter.
Meanwhile, Kotak Mahindra Bank’s return on average assets was 0.47% in the September 2025 quarter, and on annualizing it would be nearly 1.88 % for FY26.
And HDFC Bank’s return on assets (average) – not annualized was 0.49% in the September 2025 quarter, and on annualizing for FY26 it would be nearly 1.96%.
However, IndusInd Bank’s return on assets (annualized) was negative 0.33% in the September 2025 quarter.
Growth outlook
The RBI has taken several steps over the past few months to boost lending in the broader banking system. Investors will continue to monitor leading banks, SBI, HDFC Bank and Kotak Mahindra Bank, amongst others, in their ability to grow their loans books and at the same time manage their NIMs. And the ability of banks to acquire low-cost deposits and grow their loan books via their pan India branch network remains key.
In addition, investors will be monitoring the provisioning requirements of leading banks over the next few quarters.
Valuations
SBI had gained about 0.6% in late Tuesday trade to Rs 955.6, and in earlier trade on the same day, the stock had reachedits 52-week high of Rs 958.8.
SBI trades at a P/E of 11 times, according to Screener.in, while Kotak Mahindra Bank trades at more than 22 times.
HDFC Bank trades at a P/E of 21 times.
Bank credit growth is expected to pick up in the second half of FY26, given the recent GST cuts and the steps taken by RBI to lower lending costs.
Investors will also be monitoring the ability of SBI, HDFC Bank and other leading banks to protect their NIM and other operational factors over the next few quarters.
PSU bank shares are en vogue on the Street on expectations of further consolidation in this sector. SBI appears reasonably valued and could be added to one’s long-term stocks watchlist.
Disclaimer:
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Amriteshwar Mathur is a financial journalist with over 20 years of experience.
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