The banking sector has posted healthy double-digit growth so far this year, despite stock market volatility and interest rate cuts by the Reserve Bank of India (RBI), which have put pressure on margins.
Nifty Bank has gained 16% while Nifty 50 has risen by 10% this year so far. Stocks such as Canara Bank, IDFC First Bank, Federal Bank, and SBI have risen 25-50% this year.
Experts remain positive about the banking sector, anticipating healthy earnings growth and stabilisation in margins as the chances of further rate cuts by the RBI wane.
According to brokerage firm ICICI Securities, SBI, Kotak Mahindra Bank, City Union Bank and Karur Vysya Bank could report relatively stronger Q3FY26 results.
“We estimate sustained strong (more than 15% YoY) loan growth from IDFC First Bank, Kotak Mahindra Bank, City Union Bank, Karur Vysya Bank, DCB Bank, and RBL, while SBI should deliver nearly 13% YoY,” said ICICI Securities.
On a QoQ (quarter-on-quarter) basis, we see healthy acceleration (less than 3% QoQ) at Axis and Federal. IndusInd Bank is the only bank under coverage that could experience YoY (year-on-year) de-growth. Bandhan loan growth would be impacted by massive ARC (asset reconstruction companies) sale,” said the brokerage firm.
Ajit Mishra, SVP of Research at Religare Broking, believes that the market is discounting the possibility of further rate cuts is now largely behind us. As a result, margins are expected to stabilise.
Moreover, Mishra also expects credit offtake to improve going forward.
“The growth projections private banking majors are now putting out are encouraging, despite the challenges they faced earlier—whether on the microfinance side or due to cost ratio mismatches. Those issues are largely behind us now. Additionally, the recent foreign investments in banks such as IDBI Bank and RBL Bank show that global capital is still interested in India. It’s just coming in through different routes,” said Mishra.
Banking stocks to buy
Mishra is positive on Kotak Mahindra Bank and HDFC Bank. He said PSU banks are also well-placed as a basket, as their balance sheets are strong and support sustainable growth.
“The leaders—such as SBI, Bank of Baroda and Canara Bank—have the potential to continue performing well, broadly in line with what we expect from private banks,” said Mishra.
ICICI Securities believes that while NIM (net interest margin) recovery has been pushed out due to the recent repo rate cut, NII (net interest income) growth has bottomed out.
“Overall, we see muted (less than 5% YoY) PAT growth for the banking sector for FY26, but the same should rebound to double digits in FY27, as NIM and credit growth improve,” said ICICI Securities.
ICICI prefers Kotak Mahindra Bank, Axis Bank and HDFC Bank within large private banks.
The brokerage firm prefers small private banks such as RBL, Karur Vysya Bank, City Union Bank and DCB Bank.
“We see notable upside for RBL with minimal downside. We see strong risk-reward for SBI within PSU banks. SBI should be a key beneficiary of PSU reforms and may not be a party to PSU banks’ consolidation, if any,” said ICICI Securities.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
