ICICI Securities maintains a positive outlook on India’s banking sector, citing stronger asset quality, robust net interest income, and improved credit metrics despite margin pressures and uneven growth among private lenders.
ICICI Securities has kept a constructive stance on India’s banking sector, saying the latest quarter showed stronger-than-expected asset quality and a sharp pickup in net interest income, even as large private lenders continued to face margin pressure. The brokerage said the combination of healthier balance sheets, improving credit quality and attractive valuations leaves the sector well placed, with clarity on managing director and chief executive succession at HDFC Bank and Kotak Mahindra Bank seen as a possible catalyst for a re-rating.
The June quarter points to a banking industry that is still growing steadily, but with clear differences between lenders. According to data cited by LiveMint, private banks outperformed state-run peers on profits, deposits and overall asset quality in the quarter, even though public sector banks continued to improve their own books. Aggregate profit, deposit growth and loan expansion all remained robust, while bad loans fell further across both groups. Public sector banks also posted a record annual profit in FY26, with Financial Express reporting combined net earnings of ₹1.98 lakh crore as credit growth and asset quality improved.
ICICI Securities said sector-wide net interest income rose 11% from a year earlier, its strongest pace in several quarters, although the gains were uneven. Large private banks such as Axis Bank, HDFC Bank and Kotak Mahindra Bank posted weaker growth than the rest of the industry, while mid-sized and smaller private lenders saw far faster expansion, helped by gold loans and small-business lending. Margin trends also varied, with some lenders still feeling the effect of higher deposit costs and wholesale funding.
On asset quality, the brokerage said gross slippages rose only modestly and remained below the level seen a year earlier, while the pool of stressed accounts known as SMA also improved, particularly in microfinance and unsecured lending. Public sector banks remained relatively resilient, with slippages held down despite seasonal agricultural weakness, while private banks saw some improvement but still lagged state-run lenders on this metric. Against a backdrop of global caution in lending and a still-uncertain macroeconomic outlook, the brokerage said it remains positive on the sector and expects healthier NII and earnings growth into FY27.
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