New Delhi, Oct. 2 -- The Indian banking sector is set to witness earnings recovery in the second half of FY26, after a muted September quarter performance marked by margin pressure, moderate credit growth and a decline in profitability across private and public lenders, according to a research report by Motilal Oswal Institutional Equities.

The report highlighted that systemic credit growth, at 10.3 per cent (YoY) as of September reflected demand softness in both retail and corporate segments.

Full-year credit growth for FY26 is projected at 11 per cent (YoY), expected to improve to 12.5 per cent in FY27, aided by lower borrowing costs, GST rate cuts and income tax relief.

"With earnings gaining traction from 2HFY26, we estimate 17.7 p...