Bank Profitability Set to Improve in Coming Quarters: Systematix Research
New Delhi [India]: The profitability of Indian banks is projected to strengthen in the upcoming quarters, supported by robust advances growth and easing interest expenses, according to a report by Systematix Research.
The report highlighted four key drivers behind the anticipated improvement: stronger loan growth, lower funding costs due to ongoing deposit repricing, benefits from reduced Cash Reserve Ratio (CRR) requirements, and normalisation in unsecured loan slippages—particularly within the microfinance segment.
Systematix Research noted that while Net Interest Margins (NIMs) declined sequentially in the second quarter of FY26, they are expected to stabilise going forward, provided there are no additional rate cuts. Some banks, it added, have delivered better-than-expected margin performance.
Although yields on advances fell for most banks, the impact was partially offset by reduced costs of deposits and borrowings. The report further stated that the full benefits of term deposit repricing and CRR cuts will become more visible in the second half of FY26. Most bank management commentaries also suggest margin stabilisation in Q3 and potential improvement in Q4.
Advances, which remained subdued in the first quarter, gained momentum later, aided by the Goods and Services Tax (GST) rate cut and festive demand. Consequently, credit growth rose 11.4 per cent year-on-year.
Bank profitability, initially expected to stay muted in Q2, outperformed expectations due to higher loan growth, lower slippages and provisions, and improved fee-based and non-interest income.
As per Reserve Bank of India (RBI) data, the banking system’s advances grew 4.2 per cent quarter-on-quarter and 11.4 per cent year-on-year as of October 3, 2025. Meanwhile, deposits increased 2.9 per cent sequentially and 9.9 per cent annually, according to RBI’s Weekly Statistical Supplement.
Deposit growth remained robust across public sector banks, though overall deposits continued to trail advances growth, the report noted.
