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According to the September 2026 Results Preview – Financials: Banks report by Motilal Oswal Financial Services, banking sector business growth remains robust, supported by strong credit demand and higher FCNR(B) inflows. The report expects private banks to lead earnings growth, while Public Sector Banks (PSBs) are likely to see resilient margins.

Credit growth remains strong

Systemic credit growth stood at 18.8% YoY as of 15 September 2026, supported by sustained retail demand, higher utilisation by MSME borrowers and healthy corporate borrowing. The report also highlights higher-than-expected FCNR(B) flows of USD 133 billion as a key factor supporting credit growth.

Motilal Oswal Financial Services expects FY27E credit growth to settle around 15.5%. Mid-sized private banks are expected to lead growth, with loan growth across the coverage universe expected to vary significantly.

Deposit growth accelerates

System deposit growth increased to around 17% YoY, compared with 11–12% earlier, supported by strong FCNR(B) inflows. These inflows accounted for approximately 4.5% of system deposits.

The stronger deposit growth has also helped the system Credit-Deposit (CD) ratio ease to 80.8% from a peak of 83.4%. However, banks continue to face challenges in mobilising low-cost deposits, and term deposit rates are expected to remain broadly sticky with an upside bias.

Private banks: 2QFY27 PAT estimated to grow 24%

Motilal Oswal Financial Services estimates private banks’ Profit After Tax (PAT) to grow 24% YoY and 1.7% QoQ in 2QFY27, while earnings are expected to record a 20% CAGR over FY26–28.

Net Interest Income (NII) for private banks is estimated to grow 13% YoY and 2.8% QoQ. Among large private banks, NII growth is estimated at 8.9% YoY for HDFC Bank, 16.8% for ICICI Bank, 8.5% for Axis Bank and 14% for Kotak Mahindra Bank.

NIMs likely to remain under pressure for private banks

The report expects private bank Net Interest Margins (NIMs) to decline by 8–20 basis points, primarily due to rapid business expansion following FCNR(B) inflows and the leverage provided against these deposits.

However, the report expects margins to gradually improve as banks deploy the surplus liquidity towards lending and retire high-cost liabilities.

PSU banks expected to deliver resilient performance

For PSU banks, Motilal Oswal Financial Services estimates 2QFY27 PAT growth of 27% YoY and 19% QoQ. NIMs are expected to remain resilient, resulting in estimated NII growth of 10.8% YoY and

1.6% QoQ.

The report expects PSU banks to deliver an 11% earnings CAGR over FY26–28. Asset quality is also expected to remain stable, with benign credit costs continuing.

Overall banking sector earnings outlook remains positive

For the overall banking coverage universe, Motilal Oswal Financial Services estimates 2QFY27 NII growth of 11.9% YoY and 2.2% QoQ, while Profit After Tax is expected to grow 25.4% YoY and 9.5% QoQ.

The report estimates that the banking coverage universe will deliver an earnings CAGR of around 15% over FY26–28, led by approximately 20% earnings CAGR for private banks.

Asset quality remains benign

The report notes that most banks have indicated that stress across secured and unsecured segments remains controlled. Consequently, slippages and credit costs are expected to remain steady.

However, Motilal Oswal Financial Services remains watchful of the impact of an uncertain macro environment on domestic business growth and credit quality, along with a below-normal monsoon.

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