Nirmal Bang Institutional Equities has released its latest banking sector note, highlighting a positive outlook for several Indian banks. The brokerage recommends 'Buy' ratings for five key players: ICICI Bank, HDFC Bank, State Bank of India (SBI), DCB Bank, and South Indian Bank, citing strong credit growth and expected earnings sustainability.
Indian Banking Sector Sees Robust Growth
The June quarter (Q1FY27) saw healthy performance across covered banks, with loan growth accelerating to 17.2 percent year-on-year, up from 15.1 percent in Q3FY26. This sequential expansion was fueled by a recovery in corporate credit for private-sector banks, retail, agriculture, and MSME (RAM)-led growth at PSU banks, and continued strength in gold loans. Deposit growth, however, lagged slightly at 12 percent year-on-year.
Asset quality remained benign, with average credit costs moderating to 45 basis points. Operating costs were disciplined, and fee income showed resilience despite typical first-quarter seasonality. Overall, aggregate Net Interest Income (NII), Pre-Provision Operating Profit (PPOP), and Profit After Tax (PAT) grew 11 percent, 7 percent, and 14 percent year-on-year, respectively.
System deposit growth saw a significant acceleration to 14.7 percent by mid-August, largely aided by the RBI’s concessional FCNR(B) swap facility. This facility helped reduce the funding gap against credit growth, mobilizing approximately $136.4 billion. Nirmal Bang expects robust system deposit growth to continue in the near term, improving funding availability and moderating competitive deposit intensity.
Nirmal Bang's Top Picks and Target Prices
ICICI Bank
Nirmal Bang favors ICICI Bank for its best-in-class returns and operating performance. The brokerage expects the bank to sustain its strong earnings trajectory, supported by healthy credit growth, benign asset quality, resilient Net Interest Margins (NIMs), and sustained fee income momentum. This is projected to drive a Return on Assets (RoA) of 2.3–2.4 percent. Nirmal Bang maintains a 'Buy' rating with a target price of Rs 1,820.
HDFC Bank
HDFC Bank is liked for its attractive valuation and healthy credit demand, which is expected to sustain loan growth momentum. Productivity gains are anticipated to drive operating leverage, while asset quality remains comfortable. Margins are likely to recover gradually due to lower funding costs and an improving CASA mix. Nirmal Bang has a 'Buy' rating with a target price of Rs 1,020.
State Bank of India (SBI)
SBI is positioned as a preferred PSU play, expected to deliver a sustainable RoA of 1.1–1.2 percent. The bank is projected to sustain healthy earnings through robust credit growth, resilient margins, strong fee income, disciplined cost control, and benign asset quality. Nirmal Bang recommends a 'Buy' rating with a target price of Rs 1,275.
DCB Bank
For DCB Bank, strong execution, healthy loan growth, gradual NIM expansion, and improved fee income are expected to support sustained earnings improvement. The bank is forecast to sustain RoA around 0.96 percent and improve to 1 percent by FY28E. Nirmal Bang assigns a 'Buy' rating with a target price of Rs 260.
South Indian Bank (SIB)
South Indian Bank has been repositioned and is well-placed for scaling, with its earnings profile transitioning to structurally sustainable returns. Resilient margins, healthy loan growth, benign credit costs, and positive operating leverage should support a sustainable RoA of 1.2 percent. Nirmal Bang believes the stock is poised for a valuation rerating and gives a 'Buy' rating with a target price of Rs 62.