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Indian Banks Set for Stable Margins, Profit Growth in Q3 FY26

Indian banks are projected to report broadly stable net interest margins in the third quarter of FY26, with overall profitability improving year-on-year. This improvement is driven by sustained loan growth, higher fee income, and lower credit costs, according to a report by Systematix Institutional Equities. The report notes that while yields on advances are declining, benefits from earlier term deposit rate cuts and CRR reductions should help maintain steady margins. Banking system advances showed strong growth, expanding 4.5% quarter-on-quarter and 11.7% year-on-year as of mid-December 2025.

Key Points: Indian Banks: Stable Margins, Higher Profit Expected in Q3 FY26

  • Stable net interest margins expected
  • Profitability to improve year-on-year
  • Advances growth sustained by lower rates
  • Fee income rise, trading gains may dip
  • Asset quality steady with seasonal agri slippages
2 min read

Indian banks likely to see stable margins, profit growth in Q3 FY26

Indian banks forecast stable net interest margins and improved profitability in Q3 FY26, driven by loan growth and lower credit costs.

"Although the yield on advances continues to decline, the positive impact from prior term deposits' rate reductions is expected to become evident this quarter onwards. - Systematix Institutional Equities"

New Delhi, Jan 5

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.

- IANS

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Reader Comments

R
Rohit P
As a small business owner, I'm more interested in the "sustained advances growth" part. Easier loans at lower rates can be a game-changer. The report mentions GST reduction benefits too – that's a double boost for MSMEs if implemented well.
A
Aman W
Stable margins are fine, but I wish they'd focus more on reducing banking frauds and improving customer service. Profit growth shouldn't come at the cost of common people facing issues with digital transactions or hidden charges.
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Sarah B
Interesting analysis. The lag effect of term deposit rate cuts finally helping margins makes sense. For investors, the key will be which banks manage the unsecured loan slippages best. The ones with strong retail portfolios might outperform.
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Vikram M
Bank Nifty at all-time high says it all! The market has already priced in this stability. As a depositor, I just hope the FD rates don't fall too sharply now. Need that interest income for my retirement planning.
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Nisha Z
Good to see asset quality remaining steady. The seasonal agri slippages are always a concern, but if recoveries are strong, it should balance out. A robust banking sector is the backbone for India's growth story. 🇮🇳

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