YES Bank, SBI, ICICI Bank, HDFC Bank, BoB, DCB: Check target prices for top banking stocks

India’s banking sector continues to show healthy trends, with credit growth accelerating, asset quality remaining stable and return ratios holding up, according to a report by Anand Rathi Share and Stock Brokers. It said system credit growth rose 17.7 per cent year-on-year (YoY) in May 2026, marking the ninth straight month of acceleration, with public sector banks (PSBs) outpacing private peers.

Anand Rathi said deposit growth also improved to about 12.2 per cent in May 2026, though it continued to lag credit growth. It said new FCNR deposit rules could lift deposit growth by 150-200 basis points and help sustain sector credit growth at 14-15 per cent in FY27. It added that while net interest margins, or NIMs, fell in the fourth quarter of FY26, the possibility of a rate hike in calendar year 2026 points to stable to improving margins in FY27.

Credit growth and deposits
Anand Rathi said credit growth accelerated from 9.5% in June 2025 to about 17.7 per cent in May 2026. PSBs continued to grow faster than private banks, helped by market share gains in retail and MSME lending. It said industrial credit could emerge as a new demand driver amid government measures aimed at boosting manufacturing in India.

The brokerage added that PSBs could grow in line with, or faster than, private banks because of lower loan-to-deposit ratios, excluding the international book, and a narrowing gap in deposit growth. The report said the Reserve Bank of India’s twin forex swap facilities covering FCNR(B) deposits should support deposits further.

Under the facility, the RBI will bear hedging costs for FCNR(B) deposits with maturities of three to five years raised till 30 September 2026, while also exempting such deposits from CRR and SLR requirements. Anand Rathi said this could allow banks to offer rates of about 6-7.1 per cent, with estimated aggregate flows of $40-60 billion and a 1.5-2 per cent boost to deposit growth.

Margins and asset quality
Anand Rathi said calculated system NIM fell about 5 basis points quarter-on-quarter in Q4FY26 after a 25 basis point repo rate cut in December 2025 reduced loan yields. PSBs saw a bigger impact of about 6 basis points, compared with about 3 basis points for private banks.

Regional banks were the exception, with NIM improving about 24 basis points, led by a higher share of gold loans. The brokerage said cost of funds continued to moderate, with marginal WADTDR correcting about 78 basis points since February 2025, leaving room for easing into FY27.

On asset quality, Anand Rathi said the gross slippage ratio improved by about 9 basis points quarter-on-quarter and 35 basis points YoY to about 0.97 per cent in Q4FY26. PSBs remained best-in-class with sub-1% gross slippages and near-zero net slippages.

Large private banks improved, while new-age private banks continued to report elevated stress of 2-4 per cent slippages. It said risks from El Nino, crude prices, higher tariffs and muted white-collar job growth could raise slippages in FY27 and FY28, though banks remain resilient with provisioning cover above 80 per cent and capital ratios.

Valuations and picks
Anand Rathi said sector valuations at 1.5 times trailing consolidated book appear reasonable against a 14-15 per cent growth and return on equity trend. It expects PSBs to outperform private banks on growth and return on equity, narrowing their valuation discount.

Its top picks are SBI (Target Price: Rs 1,301), Bank of Baroda (Target Price: Rs 329), Union Bank of India (Target Price: Rs 208), Indian Bank (Target Price: Rs 1,051), Axis Bank (Target Price: Rs 1,610), ICICI Bank (Target Price: Rs 1,716), Federal Bank (Target Price: Rs 349), DCB Bank (Target Price: Rs 272) and J&K Bank (Target Price: Rs 198). It has a 'buy' rating on all these stock.

It also has a 'buy' rating on HDFC Bank (Target Price: Rs 967), Karur Vysya Bank (Target Price: Rs 376), City Union Bank (Target Price: Rs 355), Karnataka Bank (Target Price: Rs 330) and South Indian Bank (Target Price: Rs 59). It has a 'hold' rating on Kotak Mahindra Bank (Target Price: Rs 434), while it has given a 'sell' rating for YES Bank (Target Price: Rs 19) and Bandhan Bank (Target Price: Rs 140).