HDFC, Kotak, RBL Bank, BoB, PNB, AU SFB beat Q2 credit growth estimates; top picks
MOFSL prefers ICICI Bank, HDFC Bank, SBI and AU Bank. These banks stand out due to their strong balance sheets, healthy PCR, and relatively better growth prospects, it said.
- Oct 10, 2025,
- Updated Oct 10, 2025 2:40 PM IST
Motilal Oswal Financial Services (MOFSL) in a fresh note on banking sector said banks such as HDFC Bank, Kotak Mahindra Bank (KMB), RBL Bank, Bank of Baroda (BoB), Punjab National Bank (PNB), Indian Bank and AU Small Finance Bank (AU SFB) surpassed its credit growth estimates in Q2, indicating that banks are actively driving growth. Although CD ratios have increased, this trend aligns well with the ongoing growth momentum, it said adding that it has upgraded its system credit growth estimates for FY26E to around 11 per cent.
MOFSL expects early signs of recovery to emerge in the second half of FY26. It said sector margins are likely to bottom out in Q2FY26 as the full impact of the June 2025 rate cut filters through lending yields. With deposit repricing underway and the phased 1 per cent CRR cut set to infuse around Rs 2.5 lakh crore of liquidity, NIM recovery is expected to begin from the second half of FY26.
MOFSL noted that asset quality trends remain stable to improving. While stress in unsecured retail segments such as microfinance and credit cards persists, it appears to be easing. Credit costs are expected to normalize in the second half, aided by better collections and an improving macro backdrop.
According to the brokerage, Q2FY26 is likely to mark the earnings bottom—dragged down by weak NIMs and higher credit costs. From Q3FY26 onward, margin recovery and steady growth momentum should drive an earnings rebound. For Q2FY26E, MOFSL expects private banks’ PAT to decline.
"For the banking sector, we believe that the margin contraction will deepen in 2Q as banks absorb the full impact of the 50bp repo cut. A CRR-related credit push is anticipated from 3Q, while lower risk weights on MSMEs and housing are going to push retail credit," MOFSL said.
It believes deposit repricing, CRR benefits, and easing retail/MFI stress should drive margin gains and asset quality improvement, leading to normalised credit costs and an earnings rebound from 2HFY26.
"We continue to prefer ICICI Bank, HDFC Bank, SBI and AU Bank. These banks stand out due to their strong balance sheets, healthy PCR, and relatively better growth prospects, which are expected to help mitigate downside risks to earnings," it said.
Motilal Oswal Financial Services (MOFSL) in a fresh note on banking sector said banks such as HDFC Bank, Kotak Mahindra Bank (KMB), RBL Bank, Bank of Baroda (BoB), Punjab National Bank (PNB), Indian Bank and AU Small Finance Bank (AU SFB) surpassed its credit growth estimates in Q2, indicating that banks are actively driving growth. Although CD ratios have increased, this trend aligns well with the ongoing growth momentum, it said adding that it has upgraded its system credit growth estimates for FY26E to around 11 per cent.
MOFSL expects early signs of recovery to emerge in the second half of FY26. It said sector margins are likely to bottom out in Q2FY26 as the full impact of the June 2025 rate cut filters through lending yields. With deposit repricing underway and the phased 1 per cent CRR cut set to infuse around Rs 2.5 lakh crore of liquidity, NIM recovery is expected to begin from the second half of FY26.
MOFSL noted that asset quality trends remain stable to improving. While stress in unsecured retail segments such as microfinance and credit cards persists, it appears to be easing. Credit costs are expected to normalize in the second half, aided by better collections and an improving macro backdrop.
According to the brokerage, Q2FY26 is likely to mark the earnings bottom—dragged down by weak NIMs and higher credit costs. From Q3FY26 onward, margin recovery and steady growth momentum should drive an earnings rebound. For Q2FY26E, MOFSL expects private banks’ PAT to decline.
"For the banking sector, we believe that the margin contraction will deepen in 2Q as banks absorb the full impact of the 50bp repo cut. A CRR-related credit push is anticipated from 3Q, while lower risk weights on MSMEs and housing are going to push retail credit," MOFSL said.
It believes deposit repricing, CRR benefits, and easing retail/MFI stress should drive margin gains and asset quality improvement, leading to normalised credit costs and an earnings rebound from 2HFY26.
"We continue to prefer ICICI Bank, HDFC Bank, SBI and AU Bank. These banks stand out due to their strong balance sheets, healthy PCR, and relatively better growth prospects, which are expected to help mitigate downside risks to earnings," it said.