Why Nomura prefers large banks over mid-tier peers? Key reasons here

Nomura on Indian banks: With system credit growth showing a modest pickup in July, Japan-based brokerage Nomura has reaffirmed its preference for large banks over mid-tier peers. The brokerage highlighted stronger return profiles, lower asset-quality risks, and superior liability franchises as key reasons for its stance. Its top picks are ICICI Bank, State Bank of India, and Axis Bank.

 

Around 9:25 AM, Axis Bank was trading 0.50 per cent higher at ₹1,061, while SBI gained 0.28 per cent to ₹806.20. ICICI Bank, however, was down 0.63 per cent at ₹1,385.70.

Credit growth trends

According to RBI’s sectoral credit growth data, system credit growth improved to 9.9 per cent Y-o-Y as of July 2025 (versus 9.5 per cent in June 2025), supported by a broad-based pickup across segments (except retail). Fortnightly data as of August 8, 2025 showed further improvement, with growth at 10.2 per cent Y-o-Y compared to 9.5 per cent on Jun 27, 2025. The system-level loan-to-deposit (LDR) ratio remained elevated at 79 per cent.

 

 

Loans to NBFCs continued to lag, growing just 2.6 per cent Y-o-Y, unchanged from June. Growth in unsecured retail also moderated to 8.0 per cent Y-o-Y in July 2025 (versus 9.5 per cent in June 2025), while home loans were stable at 9.6 per cent Y-o-Y. Retail loan growth overall moderated slightly to 11.9 per cent Y-o-Y (versus 12.1 per cent in Jun-25). 

 

On the other hand, services sector loans grew 10.6 per cent Y-o-Y (versus 9 per cent in June 2025), led by wholesale trade and real estate. Loan growth to large corporates remained weak at 0.9 per cent Y-o-Y, while agri loans grew 7.3 per cent Y-o-Y (versus 6.5 per cent in June 2025). MSME loans stood out with strong growth of 19.1 per cent Y-o-Y (versus 17.4 per cent in June 2025). 

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Rates and Liquidity

The weighted average lending rate (WALR) on fresh loans rose by 18 bps M-o-M in July 2025, led by a sharp 31 bps rise for PSU banks, while private banks saw a 16 bps decline. Retail term deposit rates in the 1-3 year bucket for large banks remained steady after cumulative cuts of 55-90 bps since February 2025.

 

System liquidity stayed in surplus at ₹2.7 trillion as of end-August, similar to July-end. FX reserves moderated slightly to $691 billion as of August 22, 2025 (versus $698 billion as of July 25, 2025). Currency in circulation was flat M-o-M at ₹38 trillion (as of August 8, 2025), while outstanding CDs declined 3 per cent M-o-M. Call money rates (15-day average) were flat at 5.4 per cent. The 10-year G-sec yield rose ~24 bps M-o-M to 6.6 per cent, while the US 10-year yield fell ~15 bps to 4.2 per cent, widening the yield spread to ~240 bps (versus ~200 bps in July 2025).

Outlook

Nomura expects system credit growth to accelerate from H2FY26F, reaching 12 per cent Y-o-Y by FY26F. It also sees the planned phased 100bps cut in cash reserve ratio (CRR), starting September 6, 2025, as a driver of improved liquidity and credit expansion. Against this backdrop, Nomura reiterated its stance that large banks are better placed than mid-tier peers, thanks to stronger profitability, more stable funding bases, and lower asset-quality risks.