According to Nitin Aggarwal, Head - BFSI Research, Institutional Equities at Motilal Oswal Financial Services, private banks are positioned for strong earnings recovery in FY27. As reported by CNBC TV18, Aggarwal expects private banks to deliver 18-20% earnings growth over the year, supported by improving profitability and lower credit costs. The banking sector is emerging from more than a year of earnings pressure, with the recovery expected to gather pace in the second half of 2026-27 as margins stabilise.
The April-June quarter of 2026 marked a strong start for the banking sector, with several lenders reporting better-than-expected profits. According to CNBC TV18, bad loan slippage and provisioning declined sharply during this period. While net interest margins remain under pressure for many banks, Aggarwal believes the worst may be over, with expectations of margin expansion at the sector level in the second half, where earnings momentum will pick up.
Among large banks, Motilal Oswal's preferred picks remain ICICI Bank, HDFC Bank and State Bank of India (SBI). As reported by CNBC TV18, Aggarwal noted that ICICI Bank continued to stand out despite its size, delivering another earnings beat even after adjusting for one-off gains. He expects earnings at banks such as Axis Bank and Kotak Mahindra Bank to improve as credit costs normalise.
Within public sector undertaking banks, Punjab National Bank (PNB) remains a preferred idea, with healthy liquidity, improving margins and one of the best slippage ratios in the sector. According to CNBC TV18, Aggarwal also remains positive on mid-sized private banks, especially AU Small Finance Bank, which he expects to continue compounding at over 20% over the coming years. He also likes Federal Bank and RBL Bank, saying these lenders are well placed to benefit as sector earnings recover.
Looking across the sector, Aggarwal noted that leadership has shifted with mid-sized private banks and select PSU lenders outperforming many large private banks over the past year. As reported by CNBC TV18, he said the private banking space as a whole is preferred because that's where earning growth will be moving towards the 18-20% run rate. Improving credit costs could help some banks deliver exceptionally strong earnings growth from a low base, with the sector showing signs of recovery after a difficult period.
