Strong Q1, growth hopes drive gains for HDFC Bank and ICICI Bank

A steady set of earning, during the first quarter of the current financial year (Q1FY26) by the country’s top two private banks, HDFC Bank and ICICI Bank, and growth expectations, led to a rally in their stock prices on Monday. While ICICI Ba­nk gained about 2.8 per cent, HDFC Bank was up 2.2 per cent and were the second and third largest gainers on the Sensex as well the Nifty. 

 

Brokerages are bullish on the prospects of both banks. In addition to an upbeat loan growth in H2FY26 onwards, they expect HDFC Bank to catch up on credit growth amid improved liquidity, with margins likely holding up over the coming financial years.

 

“HDFC Bank posted a steady quarter with a slight earnings beat due to tax reversals. We tweak our earnings estimates and project HDFC Bank to deliver an FY27 return on asset (RoA) of 1.9 per cent and a return on equity (RoE) of 14.9 per cent,” said analysts at Motilal Oswal Financial Services. They reiterate their ‘buy’ rating on HDFC Bank stock with a higher target price of ₹2,300.

 

Most analysts point out that ICICI Bank delivered a strong performance in a tough quarter and expect the bank to outperform large peers going ahead. 

 

Analysts led by CLSA’s Piran Engineer highlight that the bank has delivered yet another strong quarter, with net interest income (NII) /preprovisioning operating profit or PPOP beating estimates by 4-7 per cent. The bank is the only one in their coverage so far to report a sequential growth in NII despite the sharp rate cut environment. They have an outperform rating with a target price of ~1,700 per share.

 

Kotak Research, too, has a ‘buy’ rating with a similar target price. “FY26 is still a challenging year on net interest income (NII) and growth, although we see the bank outperforming its private bank peers on most operating ratios.” 

 

Earnings for HDFC Bank grew 12.2 per cent year-on-year (Y-o-Y) to ₹18,155 crore, driven by a one-time exceptional gain of ₹6,949.27 crore from its stake sale in HDB Financial Services.

 

The bank, however, utilised the stake sale gains to create floating provisions worth nearly ₹9,000 crore and contingency provisions of ₹1,700 crore to take the total stock of such provisions to ₹36,600 crore (1.4 per cent of loans). ICICI Bank reported a 15.5 per cent Y-o-Y earnings growth in Q1FY26 beating estimates. The gains on the net profit front were led by better NII, controlled operating expenditure, and healthy treasury gains. 

 

HDFC’s Bank’s deposit growth in Q1FY26 stood at 16.2 per cent Y-o-Y and 1.8 per cent quarter-on-quarter (Q-o-Q). Loan growth, meanwhile, was at 6.7 per cent Y-o-Y, and flat Q-o-Q. This led to further moderation in loan-to-deposit ratio (LDR) to 95 per cent.

 

Net interest income grew 5 per cent Y-o-Y to ₹31,438 crore even as core net interest margin (NIM) contracted 11 bps (basis points) Q-o-Q to 3.35 per cent. Though the margin contraction was higher than Street estimates, analysts said the bank has fully passed on the initial 50 bps repo cut and a tiny portion of the next 50 bps cut (announced in Ju­ne). This has made HDFC Bank the fastest in repricing External Benchmark Lending Rate (EBLR) loans.

 

On asset quality front, slippages increased to 1.4 per cent, led by seasonal agri slippages, while gross non-performing asset (GNPA) and net NPA (NNPA) ratio increased to 1.4 per cent and 0.5 per cent, respectively, higher by 6bps and 3bps Q-o-Q. Provision coverage ratio (PCR) declined 100bps sequentially to 67 per cent.

 

“We are not too worried about this, given core asset quality trends remain healthy,” said analysts at global brokerage Nomura with a ‘buy’ rating and an upwardly revised target price of ₹2,190. 

Check List of Q1 results today

 

ICICI Bank’s loan growth was at 11.5 per cent Y-o-Y and 2 per cent sequentially coming ahead of HDFC Bank (7 per cent Y-o-Y, 0.3 per cent sequentially) and Axis Bank which reported an 8 per cent loan growth over the year ago quarter and 1.6 per cent on a sequential basis. Deposit growth for the bank, however, moderated to 13 per cent Y-o-Y though it was flat Q-o-Q. 

 

The key highlight for ICICI Bank, according to Elara Capital, was better-than-expected NIM of 4.34 per cent, down 7 basis points Q-o-Q. The NIM impact, according to the brokerage, was much lower than its estimates even after excluding change in computational methodology and benefits from interest on IT refund. “The impact of the latest rate cut will flow through in Q2FY26, but deposit rate cuts by the bank essentially means NIM is bottoming in H1FY26,” say analysts led by Prakhar Agarwal of the brokerage.

 

Going ahead, HDFC Bank has gradually stepped-up credit growth from a low of 3 per cent in Q3FY25 to 7.7 per cent in Q1FY26, aided by accelerated retail credit growth. It expects growth to improve in-line with the system's during FY26 and outpace it in FY27.

 

"With a fortified buffer of provisions, a traditional strength of HDFC Bank, and likely pick-up in growth and stability in NIM in H2, we reiterate 'Buy'. We revise our target price to ₹2,270, valuing the stock at 2.8 times book value, based on FY26 estimates," said those at Nuvama Institutional Equities.

 

Most brokerages continue to maintain an outperform or buy rating on ICICI Bank and expect it to either sustain or better its valuation premium over larger peers.