Bank stocks to buy: The Indian banking sector delivered a measured performance in the first quarter of FY26, marked by diverging trends across private, mid-sized, and public banks.
Analysts describe the current environment as a “recalibration phase” rather than a period of distress, with the sector gradually adjusting to a softening interest rate environment and delayed deposit repricing.
While private banks showed resilience, mid-sized lenders faced pressure, and public sector banks sought shelter in treasury gains and asset quality improvements.
Banking sector Q1 show: Sector snapshot
Private banks posted a mixed performance in the first quarter of FY26, with a few reporting strong earnings while most public sector banks (PSBs) witnessed some weakness. A key concern across the board was margin contraction, primarily due to the repo rate cuts. This compression is likely to continue into the second quarter, as the full impact of rate adjustments has yet to be passed on.
Banks, however, anticipate margin recovery beginning in the third quarter as deposit repricing takes effect, helping to stabilise net interest margins (NIMs). Business growth in Q1 remained modest, with deposit growth outpacing advances in large private banks, helping maintain a controlled credit-deposit (CD) ratio.
Asset quality performance diverged across the sector. Private lenders saw some deterioration, mostly attributed to seasonal trends and pressure in the unsecured loan segment. In contrast, PSBs managed to maintain healthy to stable asset quality.
Looking ahead, most banks expect earnings to bottom out in the first half of FY26. Credit costs are also likely to improve in the coming quarters as stress from unsecured lending gradually eases. Despite this, concerns around net interest income (NII) persist, particularly with the ongoing impact of repo rate cuts and the possibility of further rate reductions.
ICICI Bank preffered pick from banking space
According to Vaqarjaved Khan of Angel One, credit demand has picked up post rate cuts, but margin pressure and elevated provisioning are acting as drags.
He remains cautiously optimistic about the sector and highlights ICICI Bank as a top pick. “Loan growth for ICICI Bank stood at 11.5 per cent YoY in Q1FY26, outpacing industry growth. Margin compression was less than expected, and we believe NIMs will bottom out by Q3,” he noted.
Brokerage Ventura also named ICICI Bank as a preferred bet. In Q1FY26, the bank posted a 15.5 per cent YoY PAT growth with strong metrics: NIM at 4.34 per cent, GNPA at 1.67 per cent, and NNPA at just 0.41 per cent. Deposits and advances rose 12.8 per cent and 11.5 per cent respectively.
ICICI Bank, the country’s second-largest private sector lender, posted a strong set of numbers for the June 2025 quarter (Q1FY26), reporting a standalone net profit of ₹12,768.21 crore, marking a 15.5 per cent increase from ₹11,059.11 crore recorded in the same period last year. The bank’s net interest income, a key measure of core income, also witnessed healthy growth, rising 10.6 per cent year-on-year to ₹21,635 crore, up from ₹19,553 crore in the year-ago quarter.
Top bank stocks to buy post Q1
Varun N Joshi of GoalFi sees merit in a barbell strategy-pairing steady performers like ICICI Bank with undervalued names such as Bank of Baroda (BoB).
He believes macro tailwinds and better execution could help underdogs gain favour. From a technical viewpoint, too, Kunal V Parar of Choice Broking noted Bank of Baroda shows underlying strength. It continues to trade above its 50- and 100-day averages, and the RSI is holding at a strong support level. “We expect an upward move towards ₹250-260, with a stop loss at ₹230.”
Among mid-cap lenders, Ventura believes Indian Overseas Bank (IOB) stands out with a 75.6 per cent YoY profit jump to ₹1,111 crore. Asset quality improved notably, and its CASA ratio stood at an impressive 43.78 per cent. Ventura expects IOB to recover NIMs in H2FY26, supported by improved operational efficiency.
Meanwhile, Ajit Mishra of Religare Broking believes top-tier names like HDFC Bank and Kotak Mahindra Bank are staging a comeback after recent challenges. “Their valuations have become more reasonable, making them attractive bets again. Both remain high-quality franchises poised to deliver mid-teen growth over the cycle,” he said.