Business News | Small Finance Banks Set for Strong Q4FY26; Outlook Hinges on FY27 Macro Trends: Report

New Delhi [India], April 13 (ANI): India's small finance banks (SFBs) are expected to report a strong performance in the fourth quarter of FY26, driven by robust loan growth, improving margins and easing credit costs, according to a report by Systematix Research.

The report noted that the March quarter is seasonally the strongest for the sector, with most SFBs already reporting over 20 per cent year-on-year growth in assets under management (AUM), reflecting sustained credit demand across segments.

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"The impact of ongoing geopolitical tensions on SFBs is likely to be limited in 4QFY26 given the lag with which macro disruptions typically transmit to borrower cash flows," noted the report.

Net interest income (NII), pre-provision operating profit (PPOP) and profit after tax (PAT) for the sector are projected to grow by around 31 per cent, 17 per cent and 74 per cent year-on-year, respectively, in Q4FY26, supported by strong loan growth and lower credit costs.

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Margins are expected to improve marginally due to a favourable shift towards higher-yielding microfinance portfolios and better recoveries, while asset quality trends are likely to remain stable with gradual improvement.

"Margins should see marginal improvement, supported by growth in higher yield segments and a gradual recovery in the MFI portfolio, while credit costs are expected to trend lower," said the report However, the report cautioned that the impact of ongoing geopolitical tensions is likely to remain limited in the March quarter due to transmission lags, but management commentary in the first half of FY27 will be crucial.