ETBFSI Research reported that the banking sector is projected to achieve a 15% compound annual growth rate (CAGR) in earnings between FY26 and FY28. This growth is anticipated to be driven mainly by private sector banks, which are expected to see a 20% CAGR, in contrast to an 11% CAGR for public sector banks (PSBs).
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As of September 15, 2026, system-wide credit growth reached 18.8% year-on-year, bolstered by demand from retail, micro, small, and medium enterprises (MSMEs), as well as corporate borrowing. However, Motilal Oswal predicts that credit growth will moderate to 15.5% in FY27. Additionally, deposit growth has surged to 17% year-on-year, aided by $133 billion in Foreign Currency Non-Resident (B) deposits, which reduced the credit-to-deposit ratio from 83.4% to 80.8%.
Public sector banks are expected to exhibit better resilience in net interest margins (NIMs), with profit after tax projected to increase 27% year-on-year in the second quarter of FY27, compared to a 24% rise for private banks. In terms of net interest income, Motilal Oswal estimates an 11.9% year-on-year increase for the banking sector, while private banks are expected to report 24% growth in profit after tax.
Despite strong performance indicators, private banks may face near-term pressure on NIMs due to rapid business growth and the demands of managing high inflows of deposits. Large private banks might experience NIM compression of 8-20 basis points, though improvements are expected as banks utilize surplus liquidity for lending.
Among large private banks, ICICI Bank is expected to report a 16.8% year-on-year growth in net interest income for the second quarter, followed closely by Kotak Mahindra Bank at 14% and HDFC Bank at 8.9%. Meanwhile, AU Small Finance Bank is projected to achieve a remarkable 53.6% increase in profit after tax, underpinned by significant growth in net interest income.
In the fintech sector, companies like Paytm are expected to see substantial increases in operational revenue and gross merchandise value. Specifically, Paytm's revenue is predicted to rise 27% year-on-year, while Pine Labs is expected to report a 22% increase.
The overall asset quality outlook remains positive, with banks indicating controlled stress levels across secured and unsecured segments. Nonetheless, the report cautions about the potential effects of macroeconomic uncertainties and suboptimal monsoon conditions on business growth and credit quality.