Private banks to outperform PSBs in earnings growth during FY26-28

India's banking sector is expected to witness a strong earnings recovery over FY26-28, with earnings projected to grow at a compound annual growth rate (CAGR) of around 15% driven by sustained credit growth and robust net interest income (NII), according to a report by Motilal Oswal Financial Services (MOFSL).

The report stated that credit growth is expected to remain in the mid-to-high teens in FY27, with private sector banks likely to outperform public sector banks during the period. The banking sector continues to benefit from the Reserve Bank of India's (RBI) recent relief measures, higher foreign capital inflows, and continued support for both short-term and durable liquidity.

Credit growth remained broad-based, with lending to the corporate and services sectors growing by 18.7% and 19.1%, respectively, in May 2026. Credit to the industrial sector has accelerated from mid-single-digit growth in the first half of FY26 to mid-teens since December 2025.