HDFC Bank, SBI, KVB, City Union, Axis Bank: 5 bank stocks to buy, target prices

Ashika Institutional Equities on Wednesday said deposit mobilisation, CASA franchise strength and management of incremental cost of funds will remain the key differentiators for banks as they focus on sustaining credit growth through FY27. The domestic brokerage said it prefers banks with strong liability franchises, healthy capitalisation and resilient asset quality, and named HDFC Bank Ltd, State Bank of India and Axis Bank as its top picks, alongside City Union Bank and Karur Vysya Bank.

The brokerage assigned a target price of Rs 959 to HDFC Bank, Rs 1,366 to SBI, Rs 1,529 to Axis Bank, Rs 283 to City Union Bank and Rs 392 to Karur Vysya Bank. It said the sector continued to see strong credit growth, even as deposit mobilisation remained a key bottleneck and margin trends varied across banks.

Ashika said advances growth across its 16 coverage banks remained strong at 16.9 per cent year-on-year and 2.5 per cent quarter-on-quarter. Growth continued to be broad-based across MSME, corporate, vehicle finance and gold loans, while banks remained cautious on unsecured retail and microfinance. Public sector banks retained growth leadership, with advances rising 17.4 per cent year-on-year against 16.1 per cent for private banks, while small finance banks also continued to post strong growth. The brokerage added that the pick-up in credit growth was also aided by banks adjusting to the revised LCR framework effective from April 1, 2026.

On deposits, Ashika said growth across its coverage universe stood at 12 per cent year-on-year and 1.1 per cent quarter-on-quarter, well below loan growth. This pushed the aggregate credit-deposit ratio to 87 per cent from 85.8 per cent in the fourth quarter of FY26 and 83.4 per cent in the first quarter of FY26. While some private banks reported healthy deposit growth, liability mobilisation remains a constraint for banks operating at elevated credit-deposit ratios. Banks are increasingly focusing on granular retail deposits and CASA, and the FCNR(B) swap window offers an incremental tailwind for lenders with strong NRI franchises. However, the continued reduction in bulk deposits across banks could keep overall deposit growth mixed in FY27.

The brokerage said net interest margins remained divergent across the banks under coverage. Average NIM stood at 4.08 per cent, down 7 basis points quarter-on-quarter but up 4 basis points year-on-year. It said deposit repricing should provide some relief, but elevated peak term deposit rates are likely to limit the pace of margin recovery.

Ashika said lower credit costs continued to support earnings. Net interest income for the banks under its coverage grew 10.7 per cent year-on-year, while pre-provision operating profit was flat year-on-year, reflecting muted treasury and other income as well as continued investments in technology and distribution. Even so, lower credit costs more than offset the pressure on operating profitability and helped drive 13.5 per cent year-on-year growth in profit after tax.

On asset quality, the brokerage said conditions remained benign, with gross and net non-performing assets improving across most banks. Stress in microfinance and unsecured retail continued to moderate, while loan growth increasingly shifted towards secured segments such as MSME, vehicle finance, gold loans and commercial banking. It said this mix should support asset quality and earnings stability in the near to medium term.

Ashika also said the transition to the expected credit loss framework from April 2027 appears manageable for most banks, backed by healthy capital and existing provision buffers. It said the new framework is likely to lead to a gradual increase in steady-state credit costs, but the one-time transition impact can be absorbed over the four-year glide path. IndusInd Bank remains an outlier, with management estimating a one-time impact of about 1 to 1.5 per cent of advances. Overall, the brokerage said banks with stronger liability franchises, sound capital and resilient asset quality remain better placed as the sector balances strong credit growth with funding and margin pressures through FY27.