PL Capital Maintains BUY on ICICI, Kotak Mahindra Bank as NIM Stability, Loan Growth Support Q1FY26 Outlook
- 8th July 2025
- 12:00:00 AM
- 4 min read
Mumbai | July 8 – India’s banking sector is set for a seasonally soft Q1FY26, but PL Capital maintains its BUY ratings on ICICI Bank and Kotak Mahindra Bank, citing stable net interest margins (NIMs), steady loan growth, and resilient profitability in large private banks amid a moderating growth environment.
In its Q1FY26 earnings preview, the brokerage expects banks under its coverage to report Net Interest Income (NII) growth of 1.5% QoQ, with private banks leading the momentum while public sector banks (PSBs) see flattish trends due to seasonality and rate adjustments.
“Loan growth and deposit accretion have moderated across the system, but margin stability and lower cost of funds offer comfort in the near term,” said Gaurav Jani, Senior Analyst at PL Capital. “We remain positive on ICICI and Kotak Mahindra Bank for their best-in-class return profiles and strong capital positions.”
Loan Growth Stable, Margins Hold Firm
System credit growth for June 2025 is projected at ~10% YoY, supported by steady housing and retail loan demand, even as unsecured lending growth moderates. Coverage banks are expected to post loan growth of 0.8% QoQ (10.2% YoY), while deposit growth is seen at 0.7% QoQ (12.8% YoY).
Despite repo rate cuts, calculated NIMs are likely to remain stable at 3.32%, aided by lower savings and term deposit rates partially offsetting reduced lending yields. Large private banks are expected to outperform, with ICICI Bank and HDFC Bank likely to post marginal sequential NIM expansion.
Earnings Snapshot:
| Bank | NII (₹ Cr) | QoQ | PAT (₹ Cr) | QoQ | NIM (%) |
| HDFC Bank | 31,431 | 0.20% | 16,422 | -2.90% | 3.56 |
| ICICI Bank | 21,251 | 0.80% | 11,649 | -6.90% | 4.4 |
| Axis Bank | 13,830 | 0.10% | 6,743 | -5.30% | 3.8 |
| Kotak Mahindra Bank | 7,349 | 0.90% | 3,332 | -6.20% | 4.63 |
| SBI | 42,592 | -0.40% | 19,576 | 5.00% | 2.86 |
Slippages May Rise, But Asset Quality Stable
Seasonal agricultural stress typically results in higher slippages in Q1, and PL Capital expects a marginal increase in the slippage ratio, with the system Gross NPA (GNPA) expected to rise to 1.88% from 1.82% in Q4FY25.
Key expected GNPA trends:
- ICICI Bank: 1.81% (+0.06%)
- HDFC Bank: 1.39% (+0.06%)
- SBI: 1.88% (+0.06%)
Provisioning costs are expected to remain stable at around 0.54% of loans for coverage banks, while the provision coverage ratio (PCR) is likely to stay around 75%.
“Despite an uptick in slippages, asset quality remains under control, and provision buffers are adequate across large banks,” the report noted.
Why ICICI and Kotak Remain Top Picks
ICICI Bank (BUY, TP ₹1,700)
ICICI Bank remains PL Capital’s preferred pick due to:
- Best-in-class core Return on Assets (RoA) of 2.1% projected for FY27.
- Core earnings growth of 16% YoY for FY27, driven by margin stabilisation post-FY26.
- Strong CET-1 ratio (~16%) with provision buffers of 1%.
“ICICI’s strong capital position, robust execution, and diversified loan book position it well for sustainable growth,” said Aditya Modani, Analyst, PL Capital.
Kotak Mahindra Bank (BUY, TP ₹2,400)
Kotak Mahindra Bank is also favoured due to:
- The lifting of the RBI embargo, which is expected to improve loan and deposit growth.
- Plans to increase the share of unsecured loans from 10.5% to 15%, which will help cushion NIMs.
- Expected core earnings growth of 18.3% YoY for FY27, with core RoA of 1.9%.
“Kotak’s clear strategy to improve NIM resilience and boost growth while maintaining asset quality supports our positive stance,” PL Capital added.
PL Capital’s Bank Picks:
| Bank Name | Rating | Target Price (₹) |
| ICICI Bank | BUY | 1,700 |
| Kotak Mahindra Bank | BUY | 2,400 |
| Axis Bank | BUY | 1,500 |
| HDFC Bank | BUY | 2,125 |
| State Bank of India | BUY | 960 |
| Bank of Baroda | BUY | 275 |
| Union Bank of India | BUY | 160 |
| Federal Bank | BUY | 220 |
| DCB Bank | BUY | 155 |
| City Union Bank | BUY | 210 |
| IndusInd Bank | HOLD | 780 |
Outlook: Q1FY26 a Soft Start, Long-Term Positive
PL Capital highlighted that while Q1FY26 may reflect seasonal weakness, the overall outlook for the banking sector remains positive due to:
- Stable NIMs despite rate cuts.
- Healthy retail and housing loan demand.
- Robust capitalisation and provision buffers among large private banks.
With deposit growth slowing, banks may see better Loan-to-Deposit Ratios (LDR), aiding profitability in subsequent quarters as credit demand improves post-monsoon.
“Q1FY26 may be a soft start for banks, but the sector remains structurally sound with large private banks positioned to outperform as growth stabilises,” the report concluded
For detailed segment commentary, rating rationales, and updated financial forecasts, click here to view PL Capital’s complete Q1FY26 Banks Report.
PL Capital
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
