According to a Systematix Research analysis, better advances growth and reduced interest costs are likely to boost banks' profitability in the upcoming quarters.

Key Highlights

• Bank profitability expected to improve, aided by stronger loan growth, lower interest cost and CRR cuts. 
• Net interest margins likely to bottom in Q2 FY26; term-deposit repricing benefits visible by H2 FY26.

According to the analysis, four important elements are likely to sustain bank profitability. It said, "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."

The survey also stated that assuming there were no more rate reduction, Net Interest Margins (NIMs) were predicted to bottom out and be generally lower sequentially in 2QFY26. While some banks have surprised with positive outcomes, this scenario has mostly materialized.

For the majority of banks, the yield on advances decreased, but this was somewhat counteracted by a decrease in the cost of borrowing and deposits.

The full advantage of term deposit repricing is anticipated to become apparent in the second half of FY26, according to the research. If there are no more rate cuts, the majority of bank management commentary points to margin stabilization in the third quarter and improvement beginning in the fourth, along with the flow-through of gains from CRR reductions.

The Goods and Services Tax (GST) rate reduction and demand during the holiday season gave advances, which had been slow in the first quarter, new life. Consequently, the credit growth improved to 11.4% year over year.

Due to increased advances growth, decreased slippages and provisions, and support from fee and other non-interest revenue, profitability, which was predicted to stay modest in the second quarter, has generally exceeded expectations.

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As of October 3, 2025, the Reserve Bank of India (RBI) reported that advances in the banking system had increased by 4.2% quarterly and 11.4% annually.

System-level deposit growth was 2.9% quarter over quarter and 9.9% year over year, according to RBI's Weekly Statistical Supplement (WSS) data for the same period. For public sector banks throughout the coverage universe, deposit growth was usually robust; but, overall, deposit growth lagged behind advance growth.