He added that within the pack, Punjab National Bank (PNB), State Bank of India (SBI), and Indian Bank are preferred picks.
Among small finance banks, AU Small Finance Bank remains his top idea despite some stress in the microfinance segment and higher credit costs in recent quarters.“We remain confident that by the end of the year, earnings will be on an upswing,” he noted.
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On RBL Bank, Aggarwal said the lender’s performance has improved since they upgraded the stock around eight to nine months ago. “We believe that as the microfinance institutions (MFI) stress recedes and provisioning comes down, return on assets (RoA) will inch up towards 1% by January-March quarter,” he said, adding that Motilal Oswal expects RoA to reach around 1.2% next year.
He pointed out that RBL is the only bank in their coverage likely to see net interest margins (NIMs) expansion in the second quarter.Aggarwal said business updates across banks have been stronger than expected in the September quarter. “Most PSBs have reported 3-6% sequential growth in advances, and SFBs have grown around 4-5%,” he said, noting that AU SFB and Equitas SFB reported a healthy sequential pickup despite soft trends in the MFI segment.
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On HDFC Bank, Aggarwal said loan growth exceeded expectations, supported by a rise in the credit-deposit ratio. “Advances have come in better than anybody’s expectations,” he said. He expects margins to bottom out in the second quarter, with recovery ahead due to factors like the cash reserve ratio (CRR) cut and improved deposit pricing.
Commenting on IndusInd Bank, Aggarwal said near-term business updates are less relevant than management execution and clarity in the coming quarters. He sees limited downside at current valuations, while maintaining a neutral stance on the stock.
Aggarwal also highlighted that overall retail spending remains steady, though corporate spending has moderated. He added that for some banks facing higher credit costs, “the second half should be better than the first half.” He expects upcoming repo rate cuts to support earnings recovery across the sector.
For the full interview, watch the accompanying video
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