Mid-cap private sector banks like IDFC First Bank and Federal Bank have received increased investor interest on account of their strong loan growth in the June 2026 quarter.
Also, the valuations of IDFC First Bank and Federal Bank on the preferred valuation matrix – price-to-(standalone) book value are lower than larger peer, Kotak Mahindra Bank. But we will come to this later. Let’s start with the operational performance of these banks.
Credit Expansion: The 21% Surge Leading the Mid-Cap Rally
Credit growth is an operational parameter of a bank that is keenly tracked.
And IDFC First Bank , which declared its results on Saturday, grew its advances by nearly 21% y-o-y to Rs 2.94 lakh crore in the June 2026 quarter. The bank has highlighted strong growth in high-margin loans. For instance, gold loans grew 103% y-o-y to Rs 4,892 crore in the June 2026 quarter while vehicle loans grew 26.4% y-o-y to Rs 34,144 crore and consumer loans grew 27.3% y-o-y to Rs 57,834 crore.
The June quarter is typically a ‘slack’ season for credit, with individuals, small and large companies still evaluating their financial objectives for the new financial year. Also, it is a quarter where many families are on holiday and demand for credit is typically slack.
Meanwhile, Federal Bank highlighted that its advances grew 15% y-o-y to Rs 2.81 lakh crore in the June 2026 quarter. The high- margin gold loans grew by nearly 32.9% to Rs 41,476 crore.
Larger rival, Kotak Mahindra Bank grew its loan book by 15% y-o-y to Rs 5.12 lakh crore in period under review. It must be emphasised that the loan book of mid-cap banks is much smaller than that of Kotak Mahindra Bank.
The strong double digit loan growth of these private banks is commendable.
Deposits as the Growth Engine: CASA Ratios Show Resilience
Of equal importance, IDFC First Bank’s deposits grew 17.8% y-o-y to Rs 3.11 lakh crore in the June 2026 quarter, with low-cost current and savings account (CASA) rising 24.6% y-o-y to Rs 1.58 lakh crore.
Deposits form the basis for a bank to extend different types of loans.
Meanwhile, Federal Bank’s deposits grew 11.4% y-o-y to Rs 3.2 lakh crore. The bank has highlighted a 18.3% growth in its low-cost current and savings account (CASA) to Rs 1.03 lakh crore in the quarter under review.
Earlier, larger rival, Kotak Mahindra Bank, grew its deposits by 12% y-o-y to Rs 5.72 lakh crore, and that was thanks to a 14% y-o-y rise in term deposits to Rs 3.41 lakh crore.
Core operational performance (June Quarter; Standalone results)
| Bank | Growth in lending (% change y-o-y) | Growth in deposits (% change y-o-y) | Net Interest Margin (%) |
| IDFC First Bank | 21% | 17.8% | 5.96% |
| Federal Bank | 15.% | 11.4% | 3.33% |
| Kotak Mahindra Bank | 15% | 12% | 4.5% |
The respective banks core banking operations are reflected in their standalone results.
Defending the Margins: How High-Yield Loans Offset Rate Pressures
Mid-cap banks with their strong focus on high margin gold and retail loans along with SME loans have broadly managed a ‘soft’ interest rate environment well, and the resulting pressure on net interest margins (NIM) pressure.
For instance, IDFC First Bank’s NIM was 5.96% in the June 2026 quarter as compared to 5.7% a year earlier.
Similarly, for Federal Bank, its focus on high margin loans helped it NIM reach 3.33% as compared to 2.94% a year earlier.
Meanwhile, for Kotak Mahindra Bank, its NIM was 4.5% as compared to 4.65% a year earlier.
The RBI has taken several steps to boost lending in the broader banking system and this includes the cut in repo rates in early December 2025. This in turn has put a temporary pressure on NIMs of banks, like Kotak Mahindra Bank, amongst others.
Cleaning the Books: Falling NPAs Fuel Triple-Digit Profit Growth
IDFC First Bank’s % of net NPAs to net advances was 0.44% in the June 2026 quarter as compared to 0.55% a year earlier. Its provisions have also declined nearly 31 % y-o-y to Rs 1,143.9 crore. The bank has highlighted that microfinance industry (MFI) gradually coming back to normalcy, and that has helped to improve asset quality and reduce provisioning requirements.
IDFC First Bank has also highlighted that it has reduced its MFI loan book from Rs 13,344 crore in FY24 to Rs 6,698 crore.
Strong growth in loans coupled with lower provisions helped IDFC First Bank’s net profit rise 132.7% y-o-y to a record Rs 1,075 crore in the first quarter of FY27. The bank has highlighted that its net profit in a quarter crossed Rs 1,000 crore for the first time in the June 2026 quarter.
Asset Quality and Profit Growth (June Quarter; Standalone results)
| Bank | Net NPA (June 2026 quarter) | Provision Trend (y-o-y) | Net profit growth (y-o-y) |
| IDFC First Bank | 0.44% | -31% | 132.7% |
| Federal Bank | 0.18% | -20% | 36.6% |
| Kotak Mahindra Bank | 0.27% | -44.7% | 25.6% |
Meanwhile, Federal Bank’s % of Net NPA was 0.18% in the June 2026 quarter as compared to 0.48% a year earlier. Federal Bank’s provisions also declined nearly 20% y-o-y to Rs 317.7 crore.
Strong loan growth and lower provisions helped Federal Bank’s standalone net profit rise 36.6% y-o-y to Rs 1,176.9 crore. The bank has also highlighted record quarterly profit.
Larger peer, Kotak Mahindra Bank, which is viewed as the benchmark for asset quality in the domestic banking sector, its % of net NPA to net advances was 0.27% in the June 2026 quarter as compared to 0.34% a year earlier. Also, a 44.7% y-o-y decline in provisions enabled Kotak Mahindra Bank’s standalone net profit rise 25.6% y-o-y to Rs 4,123 crore.
The RoE Reality Check: Where Mid-Caps Still Trail the Giants
IDFC First Bank had a standalone Return on Equity (RoE) of 3.8%, according to Screener.in, while for Federal Bank it was 11.4%.
Meanwhile, for Kotak Mahindra Bank it was 11.1%.
Return on Equity – mid-caps v/s large banks
| Bank | Return on Equity (RoE) (in %) |
| IDFC First Bank | 3.8% |
| Federal Bank | 11.4% |
| Kotak Mahindra Bank | 11.1% |
The Valuation Gap: Weighing the 46% Discount Against Execution Risks
Investors will be closely watching mid-cap banks if they can maintain their operational performance on various parameters including credit growth, NIM, and net profit growth, over the next few quarters.
Also, investors will continue to closely monitor the local impact of the Gulf war on the local banking system on various operational parameters.
IDFC First Bank rose 4.9% to Rs 84.8 on Monday, and the stock earlier in the trading day had reached a 52-week high of Rs 88.7.
IDFC First Bank, on the preferred valuation matrix – price-to-(standalone) book value, trades at 1.5 times. Over the past 5 years, the stock has traded on the above valuation matrix between 0.9 times and 2.5 times. That’s a 46% discount to Kotak Bank’s valuation.
Meanwhile, Federal Bank gained 0.5% to Rs 356 on Monday, and earlier in the trading day the stock had reached a 52-week high of Rs 357.6.
Federal Bank trades at 2.3 times. Over the past 5 years, the stock has traded on the above valuation matrix between 0.9 times and 2.3 times.
Mid-cap bank valuations v/s larger peers
| Bank | Price to (standalone) book value |
| IDFC First Bank | 1.5 times |
| Federal Bank | 2.3 times |
| Kotak Mahindra Bank | 2.8 |
| HDFC Bank | 2.0 times |
Larger peers like Kotak Mahindra Bank trades at 2.8 times. Over the past 5 years, the stock has traded between 2.8 times and 6.8 times.
And HDFC Bank , the largest sector bank, trades at 2 times. Over the past 5 years, the stock has traded between 2.1 times and 4.3 times.
HDFC Bank’s valuations have come down significantly since its merger in July 2023, with the merged entity growing its net profit at a much slower rate on a y-o-y basis as compared to the erstwhile HDFC Bank (pre-merger).
Readers could add Federal Bank and IDFC First Bank to their watch list of stocks for 2026 , and see if their performance matches expectations, going forward.
Disclaimer:
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
The writer and his family have no shareholding in any of the stocks mentioned in the article.
Disclaimer: The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.