Bank asset quality steady, loan growth strong; HDFC Bank may see re-rating: MOFSL

Banks are seeing stable asset quality with no visible stress despite macro uncertainties, says Nitin Aggarwal, Senior Group VP and Head of BFSI, Institutional Equities at Motilal Oswal Financial Services. Strong loan growth continues to support the sector’s outlook.“There are no seemingly red flags… banks are still presenting a pretty steady outlook on asset quality,” he said, while adding that segments like small and medium enterprises (SMEs) and micro, small, and medium enterprises (MSMEs) remain under watch.

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“Loan growth, I think that’s a high point for the system,” Aggarwal said, highlighting strong momentum in advances and deposits that is expected to sustain.Also Read: Raymond James strategist trims ICICI Bank, adds to HDFC Bank, stays selective on India

Among large lenders, HDFC Bank

is showing signs of improving stability. Aggarwal pointed to better deposit growth and margins, stating that momentum is “sustaining well and getting better,” with the potential for a re-rating as growth improves and leadership continuity holds.

For Axis Bank, while loan growth remains strong, margins and asset quality are key monitorables. Aggarwal indicated that margins could be nearing a bottom, with improvement in credit costs critical to support earnings going forward.

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On the broader sector, earnings growth remains a concern. Aggarwal noted that growth slowed sharply in 2025-26 (FY26) and, while expected to recover, may still underwhelm expectations. “The earning growth is coming down to almost a standstill… now we are looking for this number to improve towards mid-teens,” he said.

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