India’s banking sector is in the spotlight, showing signs of stronger credit momentum. According to global brokerage Nomura, loan growth started improving in the second half of FY26, supported by lower interest rates, easing liquidity conditions, and a favourable base effect.
The brokerage has identified six banking stocks that it believes are better positioned to benefit from the recovery in lending activity.
Stocks to watch
The brokerage’s preferred names include large private lenders Kotak Mahindra Bank, Axis Bank, and ICICI Bank.
Among mid-sized banks, Nomura prefers IndusInd Bank, IDFC First Bank, and Federal Bank.
Why is Nomura turning constructive on banks?
According to the Nomura report, system-wide credit growth has started trending upward after a prolonged period of moderation.
Nomura noted, “H2FY26 has seen system credit growth trending upwards, triggered by repo/CRR/GST rate cuts.”
The brokerage expects this momentum to continue over the next few months before gradually normalising later in FY27.
According to the report, “We expect the loan growth momentum to continue until May/Jun-26 on a favorable base and to gradually decline afterwards, with FY27 ending at 14% YoY.”
Credit growth remains resilient
Recent data released by the Reserve Bank of India (RBI) showed that banking system credit growth improved to around 16% year-on-year during April 2026.
According to Nomura, growth remained broad-based across most lending categories despite some moderation in month-on-month trends.
The brokerage highlighted that services loans grew around 19%, retail loans expanded about 16%, industrial lending increased roughly 15%, and agriculture loans rose close to 14%.
One of the strongest segments remained lending to Non-Banking Financial Companies (NBFCs).
According to the brokerage report, “Growth in the services segment was led by loans to NBFCs (27.7% YoY).”
Meanwhile, Micro, Small and Medium Enterprises (MSMEs) continued to drive industrial credit demand.
The report added that “MSME loan growth moderated month-on-month, but was still robust at 27% YoY in April 2026.”
Deposits remain the key challenge
While credit growth has improved, deposit mobilisation continues to lag behind. As per Nomura report, system deposit growth stood close to 12% compared with credit growth above 16%.
This imbalance has pushed the banking system’s Loan-to-Deposit Ratio (LDR) higher. The brokerage noted that “System credit and deposit growth inched-up to 16.2% and 12.2 YoY.”
Interest rates and liquidity remain supportive
Nomura believes recent monetary policy measures are also helping support banking activity.
According to the brokerage report, fresh term deposit rates have started easing while overall lending rates remain relatively stable.
The report noted that fresh Weighted Average Domestic Term Deposit Rates (WATDR) declined for both public sector and private sector banks during April.
At the same time, liquidity conditions remain in surplus despite some moderation.
According to Nomura, “System liquidity remained in surplus.”
Why these six banks stand out
Among large private sector lenders, Nomura prefers Kotak Mahindra Bank, Axis Bank, and ICICI Bank because of their balance between growth opportunities, deposit franchise strength and profitability outlook.
Within the mid-tier banking space, Nomura sees opportunities in IndusInd Bank, IDFC First Bank and Federal Bank.
What investor need to watch
Nomura believes India’s banking sector is entering a phase where loan growth remains healthy, funding pressures are easing and liquidity conditions are becoming more supportive.
Disclaimer: Investment views, stock choices, and ratings mentioned in this article are those of the global brokerage Nomura and do not reflect the official position or endorsements of this publication. Readers are advised that stock market investments are subject to market risks, and specific equity recommendations should not be treated as an offer or solicitation. Please consult a SEBI-registered investment advisor or qualified financial professional before making any investment decisions. This disclaimer has been generated using AI to support user well-being and responsible content consumption.