HDFC Bank, ICICI Bank is ready to earn a strong fiscal year 27, says Motilal Oswal’s Khemka

India’s banking industry is at an influence point, in which public sector banks (PSB) overall credit expansion as moderators also reverse the market share a decade long decline.

After 15.6% CAGR strong in FY 22-24, the system loan growth in July 2025 was 9.8% yoy, strict fluid, regulatory restrictions on unsafe credit and corporate borrowing weight loss.

Key Growth Driver for Retail Lending Banks-Mortgage growth has been significantly slowing down at a secure and unsafe segment, sliding on a mortgage growth of 9% and 8.5% on credit card loans a year ago.

The wholesale credit demand remains weak, the more wet pace. However, the area is expected to see a cyclic rebound in 2 HFY 26, which is supported by festive demand, better liquidity and low interest rates.

When stress is high in unsafe retail loans, the crime levels have stagnated. Risk -based prices and easy credit costs should help with recovery and micro finance lending to re -recovery, which reduces both fiscal year 25.

On the side of the fund, the margin remains under pressure as the deposit cost is adjusted, although the gradual improvement is likely to increase the profitability from 2 HFY 26.

PSBS, the long -standing property quality issues and slower modernization, posts 12% loan growth in FY 25 – outpers private banks for the first time in 15 years.

Strong capital status, improved profitability and healthy balance sheets forwarded this turnaround, raising their market share by ~ 40 bps – which is the first benefit in a decade. Nevertheless, slow branch expansion, legging technol UP G upgrades and staffing limitations can reduce the pace of growth.

System credit growth is estimated at 11-12.5% than FY 26-227, PSB is likely to post a stable but medium 10-113% CAGR by FY 28. Private banks are expected to grow a little quickly but will argue with an elevated credit-deposition ratio.

Sector earnings should be meaningfully strengthened by FY 27, indicating the end of the current recession.

Overall, the financial year starts with 26 more balanced competitive landscape-PSBS again receives fine-tuning strategies between land and private banks margin pressure.

In the medium term, credit demand will anchor the re -recovery procurement, generalization of wealth quality and gradual margin improvement growth.

HDFC Bank: Buy | Target Rs. 2300 | LTP RS 1995 | Side Ltd 15%

HDFC Bank is in good position to deliver a strong earned rebound by improving loan growth in Commercial and Rural Banking (CRB), SME and retail segment.

With the generalization of CD ratio and granular liability profile, the bank is ready to accelerate credit growth – with the system in FY 26 and ready to move forward in FY 27.

Strong property quality (GNPA/NNPA 1.4%/0.5%in 1qfy26) and Provisioning Buffer (INR366B) provides comfort, while margin is expected to retrieve recovery because of the high -cost ORROW is replaced by deposits. We estimate HDFCB to deliver FY27E ROA/ROE 1.9%/14.9%.

ICICI Bank: Buy | Target Rs. 1670 | LTP RS 1440 | Side Ltd 16%

ICICI Bank posted 15.5% Yoy PAT growth in 1qfy26, 34.3434% by stable NIM, strong treasury gain (.4 12.4B), and controlled Opax. This reflects its constant earnings delivery despite the field-wide NIM pressure and rising credit costs.

Advances have increased by 11.5% Yoy and 1.7% QOQ, which runs at a strong pace in professional banking ( +29.7% yoy, +3.7% qoq), which now forms 20% of the book.

Deposits increased to 12.8% yoy, while the cassa mixture was 41.2%. The average CASA ratio is 30 BP QQ for 38.7%. ICICI’s stable GNPA/NNPA 1.67%/0.41%, 1 131b accidental buffer and 16.3%CET -1 ratio illuminates its strong balance sheet.

Ongoing tech investments and confident personal loan/credit card outlook has a bank status for the financial year 27E ROA/ROE of 2.3%/17.3%.

(Author Head – Research, Property Management, Motilal Oswal Financial Services Ltd.)

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