Banks are poised for stronger profitability in the near future. A recent report by Systematix Research highlights encouraging trends. Key drivers include advances growth and reduced interest expenses. These factors are expected to fuel financial improvements across the sector.
Improved advances growth is a major contributor. This uptick follows a muted first quarter. Renewed momentum came from GST rate cuts and festive demand. Year-on-year credit growth climbed to 11.4 percent, signaling robust activity.
Lower interest expenses also play a crucial role. The ongoing deposit repricing cycle is reducing costs. This helps banks manage their margins more effectively. Combined with other benefits, it supports overall profitability.
Another factor is the benefit of lower CRR requirements. This regulatory change frees up capital. Banks can use these funds for lending or investments. It adds another layer of financial flexibility.
Normalisation in the unsecured segment is underway. Slippages are decreasing, especially in microfinance. This reduction lowers provisions and boosts net income. It contributes to a healthier balance sheet.
Net Interest Margins faced some pressure initially. They were expected to bottom out without further rate cuts. This scenario has largely unfolded as predicted. A few banks even posted positive surprises.
Yield on advances contracted for many institutions. However, lower deposit and borrowing costs provided relief. This offset helped maintain stability. It shows the sector’s resilience.
The full effect of term deposit repricing is still coming. It will be more visible in the second half of FY26. This timing aligns with other supportive measures. Margins should stabilise and then improve.
CRR cut benefits are also flowing through. Most bank managements expect margin stabilisation in Q3. Improvement is anticipated from Q4 onward. This assumes no additional rate cuts occur.
Advances growth rebounded strongly after a slow start. GST reductions and seasonal demand provided a lift. The banking system saw a 4.2 percent quarterly expansion. Year-on-year growth reached 11.4 percent.
Profitability in Q2 exceeded expectations. Higher advances growth and lower slippages were key. Fee and non-interest income provided additional support. These elements combined to deliver better results.
RBI data confirms the advances expansion. As of October 3, 2025, growth was solid. System-level deposit growth, however, lagged behind. It grew 2.9 percent quarterly and 9.9 percent yearly.
Deposit growth remained healthy for public sector banks. Yet overall, deposits did not keep pace with advances. This gap highlights ongoing challenges. But the outlook remains positive.
The banking sector’s future looks bright. Multiple tailwinds are aligning. Profitability is set to improve steadily. Stakeholders can expect stronger performance ahead.