New Delhi, April 5 – Banks are likely to see improved profitability year-on-year (YoY) in the March quarter of FY26, driven by sustained growth in lending, higher fee income, and lower credit costs, according to a report released on Sunday.
Data compiled by Systematix Institutional Equities noted that banks are expected to deliver better earnings performance in the fourth quarter, despite persistent margin pressures.
The improvement in profitability is primarily being driven by steady expansion in loan books, an increase in fee-based income, and a moderation in credit costs as asset quality stabilizes.
According to Systematix, the strong momentum in lending seen towards the end of the December quarter has continued into Q4 FY26.
The overall banking system has maintained healthy credit growth, supported by robust demand across segments, including retail, services, and industry.
This sustained growth in lending is expected to remain a key driver of earnings, according to the report.
At the same time, fee income is likely to witness a sequential increase, aided by higher business volumes.
However, treasury gains may remain under pressure due to rising bond yields during the quarter, which could partially offset gains from core operations.
Margins, however, are expected to remain largely range-bound. The report highlighted that net interest margins (NIMs) could be marginally lower or flat sequentially, as the decline in lending rates continues due to the impact of earlier rate cuts.
This pressure is likely to be partly offset by the benefits of lower deposit rates, which are still playing out with a lag.
On the asset quality front, stress in unsecured loan segments has shown signs of moderation and is expected to remain under control in the March quarter.
Slippages are likely to stay contained for most banks, supported by stable recoveries and upgrades. This trend is expected to keep credit costs in check, thereby supporting overall profitability.
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