Banking Sector Set for Steady Recovery Amid Economic Optimism

Motilal Oswal Financial Services report projects a positive outlook for the banking sector, predicting a 16% CAGR in earnings from FY27-28. Supported by stable margins and improving asset quality, the sector is poised for growth, with private banks leading with a projected 21% earnings rise.

The banking sector is on a path to recovery, with earnings anticipated to grow steadily, thanks to stable margins and improving asset quality. Motilal Oswal Financial Services predicts an earnings CAGR of 16% over the fiscal years 2027-28. This forecast indicates a turnaround following recent pressures in the sector.

The report highlights an upgraded earnings estimate for fiscal years 2026 and 2027 by 3% and 1% respectively, primarily credited to robust performances from public sector banks. These projections have been maintained in the third-quarter fiscal year 2026 outlook.

Private banks are expected to lead the growth with a projected 21% increase in earnings over FY27-28. A range of factors, including GST implementation, tax cuts, and reduced borrowing costs, are expected to boost loan growth and drive sectoral performance in the following years.

(With inputs from agencies.)