11 hrs ago
Motilal Oswal Names Four Banking Stocks Amid Credit Growth
India’s banks are seeing many customers and companies ask for loans.
Total bank lending is growing at about 19% compared with the same period last year.
Bank deposits are also increasing quickly, giving banks more money to lend.
However, having to pay for these deposits could temporarily reduce banks’ profit margins.
Motilal Oswal expects private banks to grow faster than public sector banks.
It believes loan growth will remain strong for much of 2026.
Corporate, services and retail lending are all expanding, with corporate lending growing fastest.
The brokerage expects banking earnings to grow about 15% each year from financial year 2026 to 2028.
Its four preferred stocks are ICICI Bank, State Bank of India, Kotak Mahindra Bank and AU Small Finance Bank.
The report is an investment view, not a guarantee or official recommendation to buy shares.
Systemic bank credit growth is around 19% year-on-year, close to a nearly decade-high level.
Motilal Oswal expects credit growth momentum to continue through much of calendar 2026 before moderating toward the end of financial year 2027.
Bank deposit growth rose to 17.8% year-on-year by August 31, 2026, driven largely by Foreign Currency Non-Resident (Bank) deposits.
Rising deposits may pressure net interest margins in the near term, particularly for private banks with greater overseas leverage.
The brokerage’s preferred stocks are ICICI Bank, State Bank of India, Kotak Mahindra Bank and AU Small Finance Bank.
- Who
- Motilal Oswal and the Indian banking sector, including ICICI Bank, State Bank of India, Kotak Mahindra Bank and AU Small Finance Bank.
- What
- Motilal Oswal identified four preferred banking stocks while reporting strong credit and deposit growth, alongside possible near-term margin pressure.
- Where
- India’s banking sector.
- When
- The report cites data through July and August 2026 and provides forecasts for calendar 2026 and financial years 2026-28.
- Why
- Loan demand and corporate lending are strong, while rising deposits and Foreign Currency Non-Resident (Bank) inflows are affecting banks’ funding, liquidity and margins.
Near-Term Margin Risks
Medium-Term Growth Outlook
Effect of rising deposits
Near-Term Margin Risks
The sharp increase in Foreign Currency Non-Resident (Bank) deposits could put near-term pressure on net interest margins, especially at private banks with higher overseas leverage.
Medium-Term Growth Outlook
Additional deposits provide funds for lending, while easing borrowing costs and deployment of these deposits could support margins over the medium term.
Private versus public sector banks
Near-Term Margin Risks
Private banks may face greater margin pressure because of their greater use of overseas leverage.
Medium-Term Growth Outlook
Private banks are expected to grow faster and record about 20% annual earnings growth from financial year 2026 to 2028, compared with about 11% for public sector banks.
Credit-growth durability
Near-Term Margin Risks
Motilal Oswal expects growth to moderate to the mid-teens toward the end of financial year 2027 because of a higher base effect.
Medium-Term Growth Outlook
The brokerage expects strong momentum to continue through much of calendar 2026, supported by wholesale, retail and corporate loan demand.
Key facts
- Systemic credit growth
- Around 19% year-on-year, near its highest level in nearly a decade.
- Deposit growth
- 17.8% year-on-year as of August 31, 2026, compared with 12-13% in the first quarter of financial year 2027.
- Top stock ideas
- ICICI Bank, State Bank of India, Kotak Mahindra Bank and AU Small Finance Bank.
- FY27 banking growth forecast
- Motilal Oswal expects 14.3% growth for its banking coverage universe, with possible upside of 100-150 basis points if economic conditions remain supportive.
- Expected growth by bank type
- Private banks are forecast to grow 15.3%, compared with 13.4% for public sector banks.
- Credit growth by segment
- Industry credit grew 22% in July 2026, while services grew 21% and retail credit grew 17%.
- Earnings outlook
- Banking earnings are expected to grow about 15% annually from financial year 2026 to 2028; private banks are forecast at about 20% and public sector banks at about 11%.
Quotes
Motilal Oswal
Brokerage house whose report analyzes banking-sector growth and earnings.
“Overall, we expect growth momentum to continue for a large part of CY26, before gradually moderating to mid-teens toward the end of FY27, owing to a higher base effect.”
financialexpress.com
“Prefer ICICI Bank, State Bank of India, Kotak Mahindra Bank and AU Small Finance Bank.”
financialexpress.com
Sources
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