(MENAFN- AsiaNet News)

The profitability of banks is expected to improve in the coming quarters, driven by improved advances growth and lower interest expenses, according to a report by Systematix Research. The report stated that bank profitability is likely to be supported by four key factors. It stated, "We expect the profitability for the banks to improve, driven by improved advances growth, lower interest expenses due to ongoing deposit repricing cycle, benefit of lower CRR requirement and normalisation of unsecured segment slippages supported by lower MFI slippages."

Margin Outlook and Deposit Repricing

The report also noted that Net Interest Margins (NIMs) were expected to be broadly lower sequentially in 2QFY26 and to bottom out if there were no further rate cuts. This scenario has largely played out, although a few banks have surprised positively. The yield on advances contracted for most of the banks, but this was partly offset by a lower cost of deposits and borrowings.

The report further highlighted that the full benefit of term deposit repricing is expected to be visible in the second half of FY26. Combined with the flow-through of benefits from CRR cuts, most bank management commentaries indicate margin stabilisation in the third quarter and improvement starting from the fourth quarter, assuming there are no further rate cuts.

Advances Growth Gains Momentum

Advances, which were muted in the first quarter, witnessed renewed momentum supported by the Goods and Services Tax (GST) rate cut and festive season demand. As a result, the year-on-year credit growth improved to 11.4 per cent.

Q2 Performance Beats Expectations

Profitability, which was expected to remain muted in the second quarter, has largely beaten expectations due to higher advances growth, lower slippages and provisions, and support from fee and other non-interest income.

System-Level Credit and Deposit Growth

According to Reserve Bank of India (RBI) data, the banking system's advances expanded by 4.2 per cent quarter-on-quarter and 11.4 per cent year-on-year as of October 3, 2025.

RBI's Weekly Statistical Supplement (WSS) data for the same period shows system-level deposit growth at 2.9 per cent quarter-on-quarter and 9.9 per cent year-on-year. Deposits growth remained generally healthy for public sector banks across the coverage universe, but overall, deposits lagged advances growth. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)

MENAFN09112025007385015968ID1110317937