HDFC Bank, Icici Bank ready for strong FY27 income, says Motilal Oswal’s Khemka

The Banking Sector of India is located at a bending point, in which banks in the public sector (PSBs) reverses a decade -long fall in the market share, even as the total moderate expansion of credit.

After a strong CAGR of 15.6% in FY22-24, the growth of the system loan illuminated to 9.8% JoJ in July 2025, weighed by a stricter liquidity, legal restrictions on unclear lending and modest company loans.

Retaintingen-the most important growth motor for private banks-is in particular delayed about secure and unsecured segments, with mortgage growth to 9% and credit card loans up to 8.5% yoj, from double digits growing a year ago.

Wholesale Credit demand remains weak, further damping momentum. However, the sector is expected to see a cyclical rebound in 2HFY26, supported by the festive demand, better liquidity and lower interest rates.

Although stress in uncovered shopping remains high, the delinquence levels are stabilized. On risk -based prices and relaxation of credit costs, recovery with uncovered and microfinance loans must help, both of which have departed sharply in FY25.

On the financing side, the margins continue to be under pressure as deposit costs adjust, although a gradual improvement will probably increase profitability of 2HFY26.PSBS, long stopped by problems with the quality of power and slow modernization has posted 12% loan growth in FY25 – the first time in 15 years. In more than ten years. Nevertheless, slower branch expansion, lagging technology -upgrades and personnel restrictions can strengthen the pace of growth.

System credit growth is projected on 11-12.5% compared to FY26-27, with PSBs being likely to post a steady but moderate 10-13% CAGR via FY28. Private banks are expected to grow a little faster, but will fight with increased credit deposit ratios.

The income of the sector must reinforce meaningfully by FY27, indicating the end of the current delay.

In general, FY26 starts with a more balanced competitive landscape PSBS-Herwinning land and private banks that coordinate strategies in the midst of margin pressure.

In the medium term, credit demand repair, standardization of activa quality and gradual marillie improvement will anchor the growth.

HDFC Bank: Buy | Target RS 2300 | LTP RS 1995 | Upside 15%

HDFC Bank is well positioned to deliver a strong income rebound, supported by improving the growth of loans in commercial and rural banking banks (CRB), SMEs and retail segments.

With standardization of the CD ratio and a detailed liability profile, the bank is ready to speed up credit growth – to be in accordance with the system in FY26 and Vooruit in FY27.

Robust asset quality (GNPA/NNPA at 1.4%/0.5% in 1QFY26) and facilities buffers (INR366B) offer comfort, while marge recovery is expected if height costs are replaced by deposits. We estimate HDFCB to deliver FY27E ROA/roe of 1.9%/14.9%.

Icici bank: buy | Target RS 1670 | LTP RS 1440 | Upside 16%

Icici bank booked 15.5% Yoy Pat growth in 1qfy26, helped by stable nims with 4.34%, strong treasure chest wines (£ 12.4b) and controlled OPEX. This reflects its consistent profit delivery despite sector-wide NIM print and rising credit costs.

Progress grew by 11.5% JOJ and 1.7% QOQ, powered by a strong momentum in business banking ( +29.7% yoj, +3.7% qoq), which now forms 20% of the book.

Deposits grew by 12.8% yoj, while Casa Mix was 41.2%. The average CASA ratio improved 30bp QoQ to 38.7%. ICICIIs stable GNPA/NNPA at 1.67%/0.41%, £ 131 billion contingency buffer and 16.3%CET-1 ratio emphasize the robust balance.

Continuous technical investments and self -assured personal loan/credit card priorities position The bank for FY27E ROA/roe of 2.3%/17.3%.

(The author is head – Research, Asset Management, Motilal Oswal Financial Services Ltd.)

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