IIFL Securities has published its latest report on the Indian banking sector, providing updated target prices and ratings for several prominent banks. The brokerage recommends a 'Buy' rating for HDFC Bank, ICICI Bank, Axis Bank, and RBL Bank. Conversely, IndusInd Bank received a 'Sell' rating, while 'Add' ratings were assigned to Kotak Mahindra Bank, Federal Bank, and State Bank of India (SBI). Bank of Baroda (BoB) was given a 'Reduce' rating.
Market Dynamics and MSME Sector Challenges
The report highlights a significant slowdown in MSME activities, primarily driven by global uncertainty. Loan growth in the MSME sector decelerated to 13 percent year-on-year in April 2026, a notable drop from 20 percent in December 2025. This slowdown is particularly evident in manufacturing and trading activities, affecting Public Sector Undertakings (PSUs) more acutely.
Marginal asset quality deterioration has also been observed, with the PAR30-plus metric rising by 40 basis points month-on-month. While this appears largely seasonal for now, IIFL Securities notes increased stress among micro and small borrowers, PSU lenders, and in cash credit and term loan products within the manufacturing and service industries.
ECLGS 5.0: A Cushion for MSMEs
In response to challenges, including those stemming from the West Asia conflict, the government announced the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 in May. This scheme offers 100 percent credit guarantee coverage for loans extended to standard MSMEs, with a cap of Rs 100 crore per borrower.
IIFL Securities believes ECLGS 5.0 is crucial for cushioning the potential impact on the sector. Previous iterations of the scheme successfully boosted credit activity, improved fund utilization, and reduced Non-Performing Assets (NPAs) and forward flow rates. The current scheme is expected to drive an additional credit flow of Rs 2.55 lakh crore, with Rs 35,000 crore already sanctioned by the end of May.
MSME loans have seen faster growth than corporate and retail loans across banks over the past three years, now constituting over 15 percent of total loans for several institutions, including Karur Vysya Bank (KVB), YES Bank, AU SFB, ICICI Bank, Federal Bank, Bandhan Bank, and HDFC Bank.
Updated Target Prices
IIFL Securities has set the following target prices for key banks:
- HDFC Bank: Rs 940
- ICICI Bank: Rs 1,630
- Axis Bank: Rs 1,650
- Kotak Mahindra Bank: Rs 426
- IndusInd Bank: Rs 740
- Federal Bank: Rs 300
- RBL Bank: Rs 370
- State Bank of India (SBI): Rs 1,150
- Bank of Baroda (BoB): Rs 283