HDFC Bank, ICICI Bank, SBI, Kotak Bank, Axis Bank, PNB, IndusInd Bank: Check fresh targets post Q2

India’s banking sector is expected to record 16.5 per cent year-on-year (YoY) credit growth in FY27, supported by $133 billion in FCNR(B) inflows, according to Motilal Oswal Financial Services. The inflows exceeded Street estimates and supported business growth in the second quarter of FY27.

Motilal Oswal expects net interest margins to recover broadly from the fourth quarter as surplus liquidity is deployed and rate transmission supports revenue. Banking sector earnings are projected to grow at a compound annual growth rate of about 17 per cent over FY26-28, driven by a similar rise in net interest income.

ICICI Bank Ltd secured the highest share of FCNR(B) deposits at 13.4 per cent, while RBL Bank Ltd mobilised deposits equivalent to 26 per cent of its outstanding deposit base. Public sector banks mobilised a lower proportion, ranging from 2 per cent to 5 per cent.

Kotak Mahindra Bank Ltd and RBL Bank had the lowest leverage against FCNR(B) deposits, leaving scope to deploy funds into higher-yielding assets. Leverage at most public sector banks, YES Bank Ltd and IDFC First Bank Ltd ranged from 70 per cent to 86 per cent, while the aggregate level was about 58 per cent.

Among banks disclosing FCNR(B) flows, credit growth excluding related loans was 18 per cent YoY and 4 per cent QoQ. Deposit growth excluding FCNR(B) deposits was 12 per cent and 2.5 per cent, respectively. Their effective credit-to-deposit ratio, excluding leverage against these deposits, was 83.7 per cent, against the reported 85.5 per cent. Excluding CRR and SLR requirements, it was 82.9 per cent.

Private banks saw sharper margin moderation because of a higher proportion of deposits mobilised and greater leverage. Margins contracted by 22 basis points at Kotak Bank, 38 basis points at IDFC First and 55 basis points at Equitas Small Finance Bank Ltd, while public sector banks saw a positive impact. Punjab National Bank, Kotak Bank, Indian Bank and RBL held relatively higher liquidity than peers.

Motilal Oswal expects private bank earnings to grow by about 22 per cent, outperforming the roughly 11 per cent growth projected for public sector banks. Its top ideas are ICICI Bank Ltd (Target Price: Rs 1,750), HDFC Bank Ltd (Target Price: Rs 925), Kotak Mahindra Bank (Target Price: Rs 500), AU Small Finance Bank (Target Price: Rs 1,275) and State Bank of India (Target Price: Rs 1,225).

Among other banks, it has a 'buy' rating on Federal Bank (Target Price: Rs 385), DCB Bank (Target Price: Rs 245), IDFC First Bank (Target Price: Rs 100), Equitas Small Finance Bank (Target Price: Rs 75), RBL Bank (Target Price: Rs 485), PNB (Target Price: Rs 140), Canara Bank (Target Price: Rs 160), Indian Bank (Target Price: Rs 1,025).

It has a 'neutral' rating on Bank of Baroda Ltd (Target Price: Rs 270), Union Bank (Target Price: Rs 200), Axis Bank (Target Price: Rs 1,475), Bandhan Bank (Target Price: Rs 175) and IndusInd Bank Ltd (Target Price: Rs 1,050).