YES Bank, HDFC Bank, Axis Bank, RBL Bank, IDFC First: Banking stocks to buy ahead of Q1 show

Indian banks are likely to report a healthy performance in Q1FY27, with profit after tax expected to rise about 15 per cent year-on-year (YoY) and asset quality seen as stable, according to ICICI Securities. The brokerage said loan growth has picked up sharply, led by wholesale segments, even as deposit growth continues to lag. 

Net interest margins are expected to remain under pressure because of elevated bulk deposit costs, adverse agri seasonality and day-count impact, although net interest income growth is estimated to improve to about 10 per cent YoY. It expects relatively better results from KMB, KVB and SIB, while RBL may remain soft. 

ICICI Securities said treasury income is likely to be strong quarter-on-quarter but weaker on a yearly basis, while operating expenses could remain under control, with large banks benefiting from the risk-based DICGC premium. It said the ability to protect NIMs while accelerating loan growth would be a key differentiator through FY27.

Despite senior management-related uncertainties, it said it prefers large private banks, followed by PSBs and small and mid-sized private banks. Systemic credit growth has risen to about 17.7 per cent YoY, based on latest RBI data. Gold loans, growing at more than 100% year-on-year, remain strong, while large industry and NBFC lending has supported overall growth.

Core retail growth, however, remains weak, with credit card growth at 1 per cent YoY and personal loans at 12-13 per cent. For the banking system, ICICI Securities estimates about 1 per cent QoQ and 16 per cent YoY growth. It expects strong 4-6 per cent QoQ growth from Karur Vysya Bank, Kotak Mahindra Bank and IDFC First Bank, while Bandhan Bank may see a quarterly decline.

On a yearly basis, City Union Bank, IDFC First Bank, Axis Bank and RBL Bank may post growth of more than 17 per cent, while IndusInd Bank is expected to continue slowing.

Deposit growth is estimated at about 1.5 per cent QoQ and 12 per cent YoY. Retail term deposit costs may continue to ease, but overall funding costs could inch up because bulk deposit rates have stayed high amid tight liquidity. Most banks may report a single-digit sequential decline in core NIM, while reported NIM will also reflect day-count and agri slippages for some lenders. 

SIB and Federal may see a 5-9 basis point uptick, while RBL could see a contraction of more than 20 basis points and Axis a decline of more than 10 basis points. The report said usual agri seasonality may weigh on asset quality, especially for large private banks, though SME slippages may ease after an adverse Q4.

MFI slippages may fall for IndusInd Bank, IDFC First Bank and RBL Bank, while Bandhan Bank could see a small sequential uptick. It said key monitorables include SMA trends, LCR after the April 2026 regulatory changes for PSBs, and traction in FCNR(B) and ECLGS 5.0 over the next one to two months.

ICICI Securities has a 'buy' rating on Axis Bank, Bandhan Bank, City Union Bank, DCB Bank, HDFC First Bank, Karur Vysya Bank, Kotak Mahindra Bank, RBL Bank and South Indian Bank. It has an 'add' rating on Federal Bank, while it has a 'hold' tag for IndusInd Bank and YES Bank.