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Bank Profits Surge on Strong Loan Growth, Lower Interest Costs: Report

A report by Systematix Group highlights a significant improvement in bank profitability during the third quarter, fueled by strong core income growth and better asset quality. Key drivers included lower loan slippages, improved recoveries, and higher fee income, which supported overall earnings. The outlook remains positive, with profitability expected to stay healthy due to continued advances growth and the benefits of the ongoing deposit repricing cycle. While deposit growth lags behind loan growth, indicating tight liquidity, the sector's stability is underpinned by favourable cost trends and strong income.

Key Points: Bank Profitability Improves on Advances Growth, Lower Expenses

  • Higher Net Interest Income drives profit
  • Lower slippages improve asset quality
  • Deposit repricing lowers costs
  • Advances growth outpaces deposits
2 min read

Bank profitability improves, outlook healthy on advances growth, lower interest expenses: Report

Bank profitability improved in Q3 driven by higher net interest income, better asset quality, and lower costs. Outlook remains healthy.

"Margins largely improved sequentially, expected to remain rangebound going forward - Systematix Group Report"

New Delhi, February 20

The profitability of banks improved in the third quarter, supported by higher Net Interest Income, lower slippages, better recoveries, and improved fee income, reflecting continued stability in the banking sector, according to a report by Systematix Group.

The report noted that the improvement in profitability was primarily driven by strong growth in core income and better asset quality trends. Lower slippages and improved recoveries helped reduce stress on balance sheets, while higher fee income further supported overall earnings during the quarter.

It stated "Margins largely improved sequentially, expected to remain rangebound going forward".

Going forward, the report mentioned that the profitability is expected to remain healthy, driven by improved advances growth and lower interest expenses due to the ongoing deposit repricing cycle. The benefit of lower Cash Reserve Ratio (CRR) requirements is also expected to support bank earnings.

Additionally, normalisation of slippages in the unsecured segment, supported by lower microfinance institution (MFI) slippages, is likely to further strengthen profitability trends.

During the quarter, the Yield on Advances (YOA) contracted for most banks, as expected. However, the impact was largely offset by a decline in the cost of deposits and borrowings, which helped protect margins.

The report stated that repricing of term deposits (TD) has started reflecting in financial performance, with banks witnessing an accelerated reduction in the cost of deposits.

It also noted full impact of the -25 basis points repo rate cut in December 2025 is expected to be visible in the fourth quarter.

While the rate cut may have some adverse impact on margins, this is expected to be partially offset by the continued repricing of existing term deposits, which will help reduce overall funding costs.

Deposit growth also continued at a reasonable pace during the quarter. However, deposits continued to lag behind advances growth, indicating tighter liquidity conditions and continued competition among banks for deposit mobilisation.

Overall, the banking sector remains on a stable footing, supported by strong income growth, improving asset quality, and favourable cost trends, with profitability expected to remain healthy in the coming quarters.

- ANI

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Reader Comments

R
Rohit P
Good to see lower slippages and better recoveries. NPAs were a huge problem for years. If asset quality is improving, it's a sign of better credit discipline overall. Banks should now focus on passing the benefits of lower funding costs to borrowers.
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Aditya G
The report mentions deposit growth lagging behind advances. As a saver, I've noticed FD rates have started to soften a bit. While good for banks' margins, we need a balance so that depositors also get fair returns. Our savings fuel this growth.
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Sarah B
Reading from an expat perspective, this stability is crucial for foreign investment. A robust banking sector is the backbone of any growing economy. The focus on the unsecured segment normalization is particularly important for sustained health.
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Karthik V
Healthy banks are good, but I hope this profitability isn't just from high processing fees and hidden charges on our accounts and cards. The report talks of higher fee income—wish there was more transparency on where that's coming from.
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Nisha Z
Positive news for sure! With lower MFI slippages, it seems even rural and micro-credit is becoming more stable. This is essential for inclusive growth. Hope the benefits of a strong banking sector reach the grassroots level as well. 👍

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