Private banks to outperform PSU banks in earnings growth during FY26-28: MOFS

Motilal Oswal Financial Services forecasts that India’s banks will see a notable earnings rebound from FY26 through FY28, with annual profit growth averaging about 15 %, fueled by steady loan expansion and healthy net interest income.

It projects loan growth staying in the mid‑to‑high teen range for FY27, anticipating that private‑sector lenders will surpass their public‑sector peers.

MOFS notes that the sector still gains from the RBI’s recent easing steps, increased foreign‑capital inflows, and ongoing backing for short‑ and long‑term liquidity.

The analysis highlights broad‑based credit expansion: corporate loans rose 18.7 % and services loans 19.1 % in May 2026, while industrial lending accelerated from low‑single‑digit growth in H1 FY26 to mid‑teen levels after December 2025.

This rise is propelled by climbing bond yields and greater working‑capital needs of big firms, midsize enterprises, and MSMEs.

Nevertheless, deposit accumulation trails loan expansion, with yearly deposit growth at 12 % and hovering between 10‑12 % since early 2026, pushing the loan‑to‑deposit ratio to a record high of roughly 83.4 %.

MOFS adds that the RBI’s relaxations on FCNR(B) deposits and overseas borrowing could draw $40‑50 billion in foreign‑exchange inflows, amounting to about 1.5‑1.8 % of total banking deposits.

MOFS predicts that net interest margins will stay pressured in Q1 FY27, given that lending rates have been flat for half a year and earlier rate cuts still weigh on earnings. Moreover, as loan growth leans more toward wholesale and MSME segments, banks could struggle to boost pricing power.

Deposit rates remain high, with several midsize banks lifting them further this quarter. Simultaneously, an industry‑wide dip in the CASA ratio is likely to raise the overall cost of funds.

“Although we anticipate a near‑term drag on NIMs, we stay optimistic about the medium term, expecting borrowing costs to ease and possible rate increases by the close of FY27,” the report notes.

MOFS projects the sector’s earnings to expand at roughly a 15 % CAGR from FY26 to FY28, mirroring the anticipated rise in net interest income, while private‑sector banks could achieve around a 20 % earnings CAGR, outpacing public‑sector counterparts.

Published: July 10, 2026