ICICI Bank, Federal Bank among top bank picks by Axis Direct after Q1 earnings season

Banks, including small finance banks, fared better across parameters in a seasonally weak Q1, with the key highlight of the quarter being robust credit growth momentum across the board and strong asset quality performance. Credit growth accelerated to ~18% YoY, largely driven by Corporate, SME, and select Retail Segments, with banks seeing a revival in unsecured segment growth as asset quality concerns normalised.
The Small/Mid-size banks outperformed their larger peers with growth robust at 27% and 20% YoY respectively, closely followed by PSBs (+18% YoY) and larger private (pvt.) banks (+17% YoY), as per the coverage by Axis Direct.

Kotak Mahindra Bank maintained core NIMs at 4.53% in Q1, supported by a stable cost of funds and improved liability mix. Credit costs remained contained at 46bps, while asset quality stayed stable. The unsecured portfolio showed improving trends after underwriting recalibration. Management expects gradual growth, supported by CASA mobilisation, retail recovery and inorganic opportunities.
The brokerage recommended a Buy on the stock, with a target price of Rs 500.

ICICI Bank’s credit growth momentum accelerated further, with advances growth robust at 20/5% YoY/QoQ, best amongst the larger pvt. banks, led by business banking, rural loans and corporate advances. Asset quality remained resilient, with credit costs at 32bps, while management expects normalised costs near 50bps. NIMs remained stable, supported by disciplined pricing and balance-sheet management, with margins expected to stay range-bound at 4.3-4.4%.
The brokerage recommended a Buy on the stock, with a target price of Rs 1,800.

SBI’s NIM improvement was driven by lower cost of deposits, while management maintained its 3% full-year domestic NIM guidance. Asset quality remained at a multi-decade low, supported by disciplined underwriting and stronger collections. With robust credit growth visibility, healthy corporate pipeline and benign credit costs, SBI is well positioned to sustain 1-1.1% RoA.
The brokerage recommended a Buy on the stock, with a target price of Rs 1,360.

Federal Bank’s net interest margins improved in Q1, driven by lower cost of deposits and a favourable asset mix. Management expects margins to expand 5-6bps quarterly over the next 3-4 quarters. CASA momentum remains strong, supported by business banking and branch initiatives. Asset quality reached a decade-best, while ECL transition impact is expected to remain limited.
The brokerage recommended a Buy on the stock, with a target price of Rs 400.

Ujjivan Small Finance Bank maintained net interest margins at 8.5% in Q1, supported by lower funding costs and better-yielding secured segments. Management expects margins to remain stable despite modest cost pressures. Asset quality improved, prompting lower FY27 credit cost guidance of 0.9-1%. The bank targets 25% credit growth, driven by portfolio diversification and increased secured lending.
The brokerage recommended a Buy on the stock, with a target price of Rs 86.