Mumbai: Domestic brokerage Motilal Oswal Financial Services (MOFSL) has raised its outlook for India’s banking sector, forecasting stronger-than-expected credit growth in FY27, driven by improving liquidity, supportive RBI measures and sustained demand for loans.
The brokerage has revised its FY27 credit growth estimate for its banking coverage universe to 14.6 per cent, up from 13.6 per cent, which is also higher than the Bloomberg consensus estimate of around 14.2 per cent.
Private banks expected to outperform
According to MOFSL, private sector banks are likely to register 15.8 per cent year-on-year loan growth in FY27, compared with 13.7 per cent for public sector banks.
The brokerage expects banking sector earnings to grow at a compound annual growth rate (CAGR) of around 15 per cent between FY26 and FY28, supported by healthy growth in net interest income (NII). Private banks are projected to deliver stronger earnings growth than their PSU counterparts.
Corporate and MSME lending remain strong
MOFSL said lending momentum remains broad-based across corporate, MSME and services segments. Large private banks reported 16.2 per cent credit growth, while PSU banks under its coverage posted 15.1 per cent growth during the latest quarter.
Gold loans continued to witness robust demand, while vehicle loans remained healthy. However, credit card loan growth stayed relatively subdued.
Top banking stocks to watch
While deposit growth continues to lag behind loan growth, the brokerage believes the Reserve Bank of India’s recent measures to improve liquidity, including relaxed norms for FCNR(B) deposits, could help attract significant foreign currency inflows and ease funding pressures.
Despite near-term pressure on net interest margins due to higher deposit costs, MOFSL remains optimistic about the medium-term outlook.
The brokerage has retained ICICI Bank, HDFC Bank, State Bank of India (SBI), AU Small Finance Bank, and RBL Bank as its preferred banking stocks.
