New Delhi, April 5 (IANS) Profitability of banks is likely to improve year-on-year (YoY) in the March quarter of FY26, supported by sustained growth in advances, higher fee income and lower credit costs, a report said on Sunday.

The data compiled by Systematix Institutional Equities noted that banks are expected to deliver better earnings performance in the fourth quarter, even as margin pressures persist.

The improvement in profitability is being driven primarily by steady expansion in loan books, a pickup in fee-based income, and a moderation in credit costs as asset quality stabilises.

According to Systematix, the strong momentum in advances 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, as per the report.

At the same time, fee income is likely to witness a sequential uptick, aided by higher business volumes.

However, treasury gains may remain under pressure due to rising bond yields during the quarter, which could partially offset the gains from core operations.

Margins, however, are expected to remain largely rangebound. The report highlighted that net interest margins (NIMs) could be marginally lower or flat sequentially, as the decline in yield on advances continues due to the impact of earlier rate cuts.

This pressure is likely to be partly offset by the benefits of lower term 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.

–IANS

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