Banking Report: Better times are ahead for India’s banks in the coming months. According to a recent report by Systematics Research, banks’ earnings are expected to see a significant increase. Four key reasons have been cited for this: increased loan disbursements, declining interest rates on deposits, a reduction in the cash reserve ratio (CRR), and a decrease in defaults on unsecured loans like personal loans. These factors are expected to strengthen the banking sector financially.
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Improvements in the microfinance sector support banks
The report states that loan defaults at microfinance institutions (MFIs) have declined, reducing pressure on banks’ non-performing assets (NPAs). Additionally, banks are currently resetting interest rates on deposits, which will reduce their funding costs. This will directly benefit banks’ profits.
Slight Decline in Net Interest Margin
According to the report, banks’ net interest margin (NIM) may decline slightly in the second quarter of the current financial year. However, it will stabilize in the coming period. Some banks have performed better than expected. The report shows that interest income on loans for banks has declined slightly, but the overall impact was limited by the reduction in interest rates on deposits.
Long-Term Benefits from Fixed Deposit Changes
Systematics Research says that the full benefits of the recent changes in fixed deposit interest rates will be visible in the second half of FY2026. The impact of the reduction in the cash reserve ratio will also be felt gradually. Bank management estimates that profit margins will remain stable in the third quarter, while they may start improving from the fourth quarter, provided there are no further interest rate cuts.
GST reforms and festive demand boost credit growth
Credit growth, which was slow in the first quarter, has strengthened in the second quarter. Reductions in GST rates and increased consumption during the festive season boosted credit demand. This led to credit growth increasing to 11.4 percent year-on-year.
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What do the numbers say?
According to Reserve Bank of India (RBI) data, as of October 3, 2025, total banking sector loans grew by 4.2 percent quarter-on-quarter and 11.4 percent year-on-year. Deposits grew by 2.9 percent quarter-on-quarter and 9.9 percent year-on-year. Public sector banks’ deposit situation remained satisfactory, although overall deposit growth is still slower than loans.
