Why Bank Earnings Are Looking Better In Q3 FY26 Despite Margin Pressure
The report from Systematix Institutional Equities said that profitability will improve due to sustained sequential advances growth, higher fee income and lower credit costs.
- Indian banks' Q3 FY26 net interest margins stable; profitability to rise.
- Profitability boosted by loan growth, higher fees, and reduced credit costs.
- Loan growth momentum expected to continue with lower interest rates.
Indian banks are likely to report broadly stable net interest margins in the third quarter of FY26, while overall profitability is expected to improve year‑on‑year, a report said on Monday.
The report from Systematix Institutional Equities said that profitability will improve due to sustained sequential advances growth, higher fee income and lower credit costs.
The brokerage forecasted growth momentum in advances to sustain, arising from lower interest rates, benefits due to GST rate reduction and higher tax limits.
Further, it predicted net interest margins to see a dip in Q4 but improve from there on as cost of deposits is expected to trend lower with reprising of existing book and normalisation of unsecured segment slippages, resulting in lower credit cost.
"Although the yield on advances (YOA) continues to decline, the positive impact from prior term deposits’ (TD) rate reductions is expected to become evident this quarter onwards. Further, advantages from Cash Reserve Ratio (CRR) reductions, should help maintain steady margins," it said.
Banking system advances expanded 4.5 per cent quarter‑on‑quarter and 11.7 per cent year YoY as of December 12, 2025, according to the RBI data.
The report said that the fee income is expected to rise with improvement in advances growth while trading gains may decline as benchmark 10 year 'G-Sec yields' improves.
Most banks have reduced rates on both savings accounts and term deposits earlier in the cycle to protect their margins. While the savings account rate cuts had an immediate impact on the cost of funds, the benefits from term deposit rate reduction due to the lagged repricing of existing fixed-rate deposits are expected to become more visible from this quarter onward, the report noted.
Another recent report noted that asset quality is expected to be steady for most banks, except some surge in seasonal agri slippages, the brokerage said, adding, Q3 will likely be characterized by steady recovery trends, which will help cushion credit cost impact.
On January 2, Bank Nifty surged to a fresh all-time high of 60,152.35, driven by continued strength in the banking pack.
(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)
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