Shares of HDFC Bank, Bank of Baroda, IDFC First Bank, and ICICI Bank, part of the Nifty Bank, continued to shine in the Indian stock market during Thursday’s trading session, September 18, propelling the index higher for the 12th straight day.
The Nifty Bank index rallied another 0.61% to 55,835, reaching a one-month high today.
Among individual counters, Bank of Baroda gained 2.6% to hit an intraday high of ₹252.25 apiece, while HDFC Bank and AU Small Finance Bank also advanced over 1% to the day’s highs. As of 11:50 a.m., 11 out of 12 stocks in the index were trading in the green.
After remaining under pressure for two months and closing both July and August in the red, banking stocks kicked off September on a positive note, with momentum remaining intact as the index has gained 4% so far this month.
The rebound in domestically focused stocks has also provided a much-needed boost to the Nifty 50, which in today’s session crossed the 25,400 mark and is up 4.10% in the ongoing month.
What is driving banking stocks higher?
The expectations of a revival in credit demand, easing concerns over the limited impact on government revenue from GST rate cuts, and falling bond prices are currently aiding a recovery rally in banking stocks.
The yield on the Indian 10-year G-Sec drops to 6.50% today after the US Federal Reserve lowered its key interest rate by 25 basis points.
Meanwhile, Finance Minister Nirmala Sitharaman reiterated the government’s commitment to achieving its fiscal deficit target of 4.4% of GDP for this fiscal year, signalling that no additional debt would be issued to support expansionary policies.
The banking system has witnessed a deceleration in credit growth to 10% YoY, driven by moderation in key retail and corporate segments. However, analysts expect that the reduction in GST rates, coupled with the lagged benefits of income tax cuts, will help drive demand and support loan recovery over 2HFY26.
Motilal Oswal projects credit growth of 11% for FY26, with further acceleration to 13% in FY27E. The brokerage also noted that sector earnings growth has turned negative due to margin pressures from elevated funding costs and yield compression stemming from the transmission of repo rate cuts.
At the same time, asset quality stress in unsecured loans and sectors such as MSMEs and CVs continues to weigh on near-term profitability.
Despite these headwinds, the brokerage said signs of stabilization are emerging. Deposit repricing is underway, and the phased CRR cuts are expected to ease liquidity constraints, thereby supporting margin recovery.
Furthermore, improvements in unsecured retail stress (MFI) and a moderation in credit costs over 2H are expected to support medium-term earnings. Motilal Oswal estimates earnings growth to recover to 18.4% in FY27, compared with just 3% YoY growth expected in FY26.
SBI, Bank of Baroda are just 6% away from their 1-year peaks
Although most index stocks recorded fresh 52-week highs in 2025, both SBI and Bank of Baroda have not yet achieved that feat. However, the latest rally has pushed them closer, with SBI now just 2.06% away from its 1-year high of ₹874.45 apiece, which it recorded in December 2024. Bank of Baroda is also only 6% away from touching its 52-week high of ₹266.95 apiece.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
