Banks – Sector Update – From LDR to LCR and back, a full circle
Published on 19 Feb 2026
RBI’s liquidity infusion through OMOs of Rs9.6trn from Oct’24 to Feb’26 till date has been offset by USD sales of Rs7.4trn. Tight liquidity in Dec’25/Jan’26 has led to CD/bulk TD rates rising by 48/25-50bps. Pick-up in system credit growth in 9MFY26 was led by reduction in excess SLR by 1.6%. Once SLR to NDTL ratio (28% in Dec’25) hits a certain floor (24-25%), deposit paucity may impact loan growth. PSB may continue to grow well till H1FY27, post which, PVB may outperform due to constrained deposit accretion and loan growth gap between them reversing. We prefer banks with (1) higher LCR/lower LDR, (2) faster growth prospects but better NIM profile, and (3) good core PAT CAGR. Covered PSB have re-rated by 45-122% from FY23 till date; with core RoA of 0.7-0.9% for FY28, BOB/CBK/UNBK have reached a valuation of 1.0x on FY28 ABV. Therefore, we do not see further material re-rating; we downgrade BOB/UNBK to ‘ACCUMULATE’ from ‘BUY’. Our top picks are ICICIB, KMB & SBI.
