HDFC Bank, SBI, ICICI Bank, Bank of Baroda: Top baking stocks picks; check targets & more

YES Securities said the banking sector could see a strong profit after tax, or PAT, growth bounce-back in FY27E after a weak FY26, with valuation recovery still anchored to the price-to-book and sustainable return on equity framework. It named Bank of Baroda and HDFC Bank as its high-conviction large-cap picks, and said it most preferred Kotak Mahindra Bank,, Axis Bank, ICICI Bank and SBI.

YES Securities said this outlook rests on three factors: broadly stable net interest margins, reasonably healthy credit growth led by corporate, MSME and retail loans, and no material rise in credit costs in FY27E compared with FY26. It said its top preferences have shifted relatively from PSU banks to private sector banks over the past 12 months, though some PSU names remain on the preferred list. 

On margins, YES Securities said banking sector NIM should remain broadly stable in FY27E despite several moving parts, including term deposit repricing and churn, changes in retail deposit rates, wholesale deposit costs, the repo rate, MCLR and liquidity indicators such as LDR and LCR.

It said wholesale deposit costs had risen in May 2026 because of the West Asia war, but the RBI had acted proactively to ensure sufficient liquidity in the banking system. On loan growth, YES Securities said credit growth had reached 17 per cent, driven by improved corporate loan growth and earlier improvement in MSME lending. 

According to YES Securities, the RBI’s FCNR (B) push has addressed balance of payments, currency and liquidity concerns together, and wholesale deposit costs have started easing since the move, as reflected in CD rates. It added that repo rate cuts have stopped since December 2025 amid returning inflation expectations, while the impact of MCLR hikes has largely played out and MCLR levels appear to have stabilised.

While system credit growth may moderate somewhat by the end of the financial year, it said growth should still remain in the low- to mid-teens range. YES Securities said corporate credit growth improved in FY26 as direct bank lending became more attractive relative to debt capital markets, with the gap between bank MCLR and AA bond yields almost narrowing to zero.

It expects net interest income growth for its coverage banks to recover from 5.3 per cent in FY26 to 16.1 per cent in FY27E, and to remain at 16.1 per cent and 15.1 per cent in FY28E and FY29E respectively. On asset quality, YES Securities said FY27E would be the last year in which pre-existing IRAC norms are used for credit provisions. 

It said it does not expect ECL to cause any material one-time shock in FY28E or any material increase in steady-state credit costs. The brokerage said key monitorables remain the impact of the West Asia war, El Nino and the lagged effect of trade tariffs.

It said stress in unsecured loans has declined, though it may remain sticky because of slow nominal GDP recovery and El Nino’s effect on microfinance. MSME loans also remain a monitorable, though YES Securities said it does not see any major build-up of stress and added that ECLGS could play a protective role if needed.

YES Securities said El Nino may affect some agricultural loans, though past experience suggests it may not be overly disruptive, even as the possibility of a Super El Nino is being monitored. The report also includes a detailed comparison of its coverage banks across an exhaustive set of parameters, alongside its broader sector view.

YES Securities has a 'buy' rating on Bank of Baroda (Target Price: Rs 400), HDFC Bank (Target Price: Rs 1,125), Kotak Mahindra Bank (Target Price: Rs 525), Axis Bank (Target Price: Rs 1,750), ICICI Bank (Target Price: Rs 1,750) and State Bank of India (Target Price: Rs 1,300) from the largecap basket. 
 

From the midcap and smallcap space, it has 'buy' rating on Bank of Maharashtra (Target Price: Rs 110), DCB Bank (Target Price: Rs 230), CSB Bank (Target Price: Rs 400), Indian Bank (Target Price: Rs 1,025), IndusInd Bank (Target Price: Rs 1,125), Federal Bank (Target Price: Rs 395), City Union Bank (Target Price: 240) and Karur Vysya Bank (Target Price: Rs 350).

However it has an 'add' rating on RBL Bank (Target Price: Rs 425) and IDFC First Bank (Target Price: Rs 90).