Many private bank stocks, including HDFC Bank, Axis Bank, and Kotak Mahindra Bank, have suffered strong losses this week so far after reporting their April-June quarter (Q1FY27) results, which reflected their thinning net interest margins (NIMs) and modest credit growth.
The Nifty Private Bank index is down about 4% so far this week, with shares of HDFC Bank down over 8% and those of Axis Bank down about 7% this week till 1 pm on 22 July.
Shares of Kotak Mahindra Bank are down 2.5%, while ICICI Bank shares are flat for the same period.
Private banks: Q1 results review
Large private banking companies reported mixed NIM trends. Excluding ICICI Bank, HDFC Bank, Kotak Mahindra Bank, and Axis Bank, reported a decline on a QoQ basis in their NIMs, largely due to a change in their loan mix, wherein low-yielding corporate loans grew faster, and retail credit growth remained tepid. Spread compression also impacted their margins.
HDFC Bank’s NIM stood at 3.26% for the June quarter, down 12 bps QoQ. For Axis Bank, it was 3.46%, down 16 bps QoQ.
Kotak Mahindra Bank’s NIM came at 4.53% for Q1FY27 compared to 4.67% for Q4FY26. ICICI Bank’s NIM was 4.36% in Q1FY27, up 4 bps QoQ.
“Large private banks delivered a healthy but mixed Q1FY27. ICICI Bank remained the standout performer with strong earnings and stable margins, while HDFC Bank reported healthy business growth but weaker margins. Axis Bank and Kotak Mahindra Bank also posted steady operational performance despite margin pressure,” said Pranay Aggarwal, Director and CEO of Stoxkart.
Brokerage firm Equirus Securities pointed out that entering Q2FY27, asset quality and capital remain strong, while deposit costs appear close to bottoming.
As per the brokerage firm, the key debate centres on the trajectory of NIM recovery into the second half of FY27, the durability of retail or unsecured loan growth, and whether corporate capex inflects sufficiently to sustain the current loan-growth momentum.
Time to buy or avoid?
Experts expect the banking sector to remain under pressure in the short term due to margin compression and amid the prospects of a poor monsoon this year.
“Following the recent earnings, the banking sector may continue to witness some near-term pressure due to factors such as margin compression and the evolving monsoon outlook,” Ajit Mishra, SVP- Research at Religare Broking, noted.
However, Mishra quickly added that the long-term fundamentals of leading banking names remain intact, and their positioning within the sector continues to be compelling.
“Long-term investors can use any earnings-led weakness or market volatility as an opportunity to gradually accumulate quality banking stocks in a staggered manner,” said Mishra.
Stoxkart’s CEO has a similar view.
“Going forward, higher funding costs and intense deposit competition could keep net interest margins under pressure. However, strong asset quality, a high-quality advances mix and robust capital buffers should provide earnings stability,” said Aggarwal.
Aggarwal believes increasing adoption of AI and digital technologies is expected to improve the operational efficiency and customer experience of banks, while healthy credit demand should support long-term growth.
“Investors should remain selective, favouring banks with strong execution and deposit franchises,” said Aggarwal.
Harshal Dasani, Business Head at INVAsset PMS, said the outlook for large private banks now calls for selectivity rather than a broad-based bullish stance.
He said rising geopolitical uncertainty, firm crude prices and expectations of a modest RBI rate hiking cycle could keep funding costs elevated for longer. While higher interest rates may initially support lending yields, the benefit tends to moderate as deposit costs catch up and credit demand normalises.
“The sector still enjoys healthy capital positions, improving asset quality and resilient balance sheets, but valuations already reflect much of that strength. The next phase of performance will be driven less by balance-sheet expansion and more by the ability to protect margins and maintain credit discipline,” said Dasani.
“The opportunity remains attractive, but this is a market where bank-specific execution is likely to matter far more than a sector-wide rerating,” said Dasani.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
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