India’s banking sector is set for strong earnings growth over FY26–28, supported by healthy credit demand and improving deposit mobilisation. Private banks are expected to lead the recovery, although near-term pressure on margins remains.
According to Motilal Oswal Financial Services, banking earnings could grow at a 15% CAGR through FY28, with private banks recording a 20% CAGR. Rapid business growth, FCNR(B) inflows and leverage against these deposits could compress NIMs at large private banks by 8–20 basis points. Margins are expected to recover gradually as surplus liquidity is deployed for loans and high-cost liabilities are reduced.
System-wide credit growth reached 18.8% YoY as of September 15, supported by retail demand, higher MSME utilisation and corporate borrowing amid elevated bond yields. FCNR(B) inflows of $133 billion have also supported growth. Credit growth is expected to moderate to 15.5% in FY27.
Deposit growth accelerated to 17% YoY from 11–12%, with FCNR(B) deposits accounting for about 4.5% of system deposits. This lowered the credit-deposit ratio to 80.8% from 83.4%. However, they continue to face challenges in attracting low-cost deposits, while term deposit rates are expected to remain sticky with an upside bias.
PSBs show stronger margin resilience
Public sector banks are expected to see greater NIM stability because of lower FCNR(B) exposure and continued efforts to reduce high-cost liabilities.
For Q2 FY27, net interest income across the banking coverage universe is estimated to rise 11.9% YoY and 2.2% QoQ, while pre-provision operating profit could increase 4.1% QoQ. They are expected to report PAT growth of 24% YoY and 1.7% QoQ, while PSU banks could post 27% and 19% growth, respectively.
The brokerage’s top picks are ICICI, State of India, Kotak Mahindra and AU Small Finance Bank. Asset quality remains stable, although macroeconomic uncertainty and a below-normal monsoon remain concerns.
ICICI Bank’s Q2 NII is estimated to grow 16.8% YoY, followed by Kotak Mahindra at 14%, HDFC at 8.9% and Axis Bank at 8.5%.
AU Small Finance Bank’s PAT is expected to rise 53.6% YoY to ₹8.6 billion, with NII up 29.3% and NIM expanding 4 basis points to 5.94%. Equitas Small Finance Bank’s PAT is estimated to rise 3.8% QoQ to ₹1.91 billion.
In payments and fintech, Paytm’s revenue is expected to rise 27% YoY and 7% QoQ to ₹26.3 billion, with GMV up 32% YoY and 6% QoQ to ₹7.5 trillion. Pine Labs’ revenue could grow 22% YoY and 7% QoQ to ₹7.9 billion, while GMV may rise 13% YoY and 14% QoQ to ₹4.8 trillion.
Also read: Viksit Workforce for a Viksit Bharat
Do Follow: The Mainstream LinkedIn | The Mainstream Facebook | The Mainstream Youtube | The Mainstream Twitter
About us:
The Mainstream is a premier platform delivering the latest updates and informed perspectives across the technology business and cyber landscape. Built on research-driven, thought leadership and original intellectual property, The Mainstream also curates summits & conferences that convene decision makers to explore how technology reshapes industries and leadership. With a growing presence in India and globally across the Middle East, Africa, ASEAN, the USA, the UK and Australia, The Mainstream carries a vision to bring the latest happenings and insights to 8.2 billion people and to place technology at the centre of conversation for leaders navigating the future.