Banks – Theme Report – Large private banks to benefit from rising interest rates
Published on 15 Jun 2026
RBI could hike the repo rate in Oct’26 as CPI, which is rising, may firm up to ~6% in Q3FY27. Tight liquidity over Dec’25 to May’26 led to increase in bulk TD rates by 60-144bps. As G-Sec to NDTL ratio for system fell to 27% in Mar’26 (H2’25: 30%), RBI has limited headroom to shore up liquidity. While the FCNR scheme may cushion interest rates, system loan growth may decline to 12-13% YoY in Mar’27 from 15-16% in Mar’26. In a tighter credit cycle exposed to growth/asset quality shocks, PSBs/MidCs are more vulnerable due to higher corporate/MSME share (47%/30%), while PVBs are resilient due to higher retail mix (47%). Over FY24 to FY26 end, PSBs/MidCs under our coverage have re-rated by 10-15%/35-50%, while PVBs have de-rated by 8-30%. We expect PVBs to outperform PSBs/MidCs given higher EBLR/unsecured share and better ability to garner deposits. Among PVBs, we like ICICIBC/KMB, and in PSBs, we pick SBI.
