3 mid-cap private banks growing faster than HDFC Bank, yet up to 57% cheaper

Investors are once again looking to leverage the strong growth in the domestic economy via bank stocks. However, they are increasingly looking beyond the well-known private banking names like HDFC Bank, Axis Bank and Kotak Mahindra Bank, which have barely given any returns to investors over the past few years.

For instance, HDFC Bank ended Thursday trade 1% higher at Rs 694, and not too far from its 52-week low of Rs 686.2 that was reached on 10 September, 2026.

We searched private banks, and valued them on the preferred matrix – price-to-(standalone) book value. We selected three private sector banks with the lowest valuations on the above matrix and found they trade at a valuation discount between 48% to 57% to HDFC Bank, the largest private sector (view table below).

We then looked at the performance of mid-cap banks on various operational parameters, loan growth, net interest margin (NIM), deposit growth and asset quality (view table below) and compared them to HDFC Bank.

Here are our findings.

Decoding the Margin Advantage: How Regional Lenders Beat the RBI’s Rate Cycle

Mid-cap banks often operate in certain states / regions and with a strong emphasis on lending to high margin gold loans, SME and retail loans. This lending strategy broadly helped mid-cap private banks to broadly offset the ‘soft’ interest environment followed by RBI for several quarters.

Also, since these mid-cap banks often focus on a few states / regions they understand customers better vis-à-vis leading private sector banks like HDFC Bank and Kotak Mahindra Bank.

The mid-cap banks have grown their loan books by double digit in the June 2026 quarter, which is a ‘slack’ period of credit, and in many cases grown their loan books faster than HDFC Bank (view table). However, it needs to be recognized that the loan books of mid-cap banks is a small fraction of HDFC Bank.

Dhanlaxmi Bank: Why a 75% Surge in Gold Loans Doubled Q1 Profits

Kerala based – Dhanlaxmi Bank grew its advances by 27.4% y-o-y to Rs 15,571.6 crore and high-margin gold loans grew by an impressive 75.9% y-o-y to Rs 7,105 crore. Also, SME loans grew by 29.2% y-o-y to Rs 2,250 crore.

Dhanlaxmi Bank has pointed out its net interest margin (NIM) was 3.57% in Q1FY27 as compared to 3.39% a year earlier, according to its investor presentation.

Another related operational parameter, net interest income (NII), grew by a healthy 42.4 % y-o-y to Rs 101.5 crore. Strong growth in NII was thanks to a surge in gold and SME loans.

Asset quality of Dhanlaxmi Bank was also strong – its % of net NPAs to net advances was 0.47% as compared to 1.1% a year earlier. Provisions of Dhanlaxmi Bank also fell 42.4% y-o-y to Rs 15.9 crore.

Strong growth in gold and SME loans helped net profit surge 104% y-o-y to Rs 24.9 crore.

Operational performance in the June 2026 quarter

Bank	Net Interest Margin (NIM)	Loan growth y-o-y (%)	Net Profit growth y-o-y (%)	Net NPA (%)
Dhanlaxmi Bank	3.57%	27.4%	104%	0.47%
Karnataka Bank	3.2%	16.6%	43.3%	0.87%
Jammu & Kashmir Bank	3.28%	26.7%	-12.4%	0.6%
HDFC Bank	3.4% (on interest earning assets)	15.6%	5%	0.41%

Karnataka Bank: The High-Margin Retail Play Defying Sector Slowdowns

Mangaluru-based – Karnataka Bank grew its advances by 16.6% y-o-y to Rs 86,610 crore and its high-margin retail loans that include gold loans grew 17.8% y-o-y. Gold loans grew 23% y-o-y to Rs 3,674 crore. Other loans grew 25.2% y-o-y and they include those to NBFC, large and mid-corporates.

Its net interest margin (NIM) was 3.2% as compared to 2.8%, and Karnataka Bank has been able to offset the ‘soft’ interest environment of the RBI with its focus on higher margin loans.

Of equal importance, Karnataka Bank’s deposits grew 6.8% y-o-y to Rs 1.1 lakh crore. Deposits form the basis for a bank to give advances.

Asset quality of Karnataka Bank was also strong – its % of net NPA was 0.87% as compared to 1.44% a year earlier. Provisions also declined 74.5% y-o-y to Rs 28.7 crore.

Strong growth in high-margin loans coupled with a fall in provisions helped Karnataka Bank’s standalone net profit rise 43.3% y-o-y to Rs 419 crore.

Jammu & Kashmir Bank: Strong Credit Demand vs. The NIM Squeeze

Jammu & Kashmir Bank grew its advances by 26.7 % y-o-y to Rs 1.28 lakh crore – the bank has highlighted in its investor brief – corporate credit growth has outpaced retail credit growth. Also, agriculture loans grew 18% y-o-y while car loans grew 20% y-o-y, and it also highlighted double-digit growth in housing and education loans.

However, its NIM was 3.28% as against 3.72% a year earlier. Of equal importance, deposits of the bank grew 16.9% y-o-y to Rs 1.73 lakh crore.

Asset quality for Jammu & Kashmir Bank was also stable — its % of net NPAs to net advances was 0.6% as compared to 0.82% a year earlier. Provisions for NPAs also declined nearly 9% y-o-y to Rs 30.6 crore.

A higher tax burden coupled with pressure on NIM resulted in standalone net profit declining nearly 12.4% y-o-y to Rs 424.2 crore.

The core banking operations of these three mid-sized banks is reflected in their standalone quarterly results.

The Efficiency Gap: How Regional Bank ROEs Compare to the Trillion-Rupee Giant

Karnataka Bank has a standalone return on equity of 10.4%, according to Screener.in.

Dhanlaxmi Bank has a return on equity of 7.15% and 15.2% for Jammu & Kashmir Bank.

HDFC Bank has a standalone RoE of 14%.

Efficiency of mid-cap banks versus HDFC Bank

Bank	Return on Equity (%)
Dhanlaxmi Bank	7.15%
Karnataka Bank	10.4%
Jammu & Kashmir Bank	15.2%
HDFC Bank	14%

The 50% Valuation Haircut: Are Mid-Cap Lenders Mispriced?

Dhanlaxmi Bank trades on the preferred valuation matrix – price-to-(standalone) book value at 0.8 times, according to Screener.in.

Karnataka Bank trades at 0.95 times and 0.93 times for Jammu & Kashmir Bank.

For perspective, HDFC Bank trades at 1.85 times.

Valuations of mid-cap banks v/s HDFC Bank – discount of 48% to 57%

Bank	Price-to-(standalone) book value
Dhanlaxmi Bank	0.8 times
Karnataka Bank	0.95 times
Jammu & Kashmir Bank	0.93 times
HDFC Bank	1.85 times

Mid-sized banks are expected to show double-digit loan growth, going forward. And that’s because with the festive season starting shortly, consumers / families are expected to borrow funds via different instruments of credit. Dalal Street is giving much higher valuations to HDFC Bank since it is a pan India bank. However, the performance of these mid-sized private banks is often equaling / exceeding the performance of HDFC Bank, although on a very small loan book.

Mid-cap banks trade at a discount of 48% to 57% to HDFC Bank. Is Dalal Street ignoring the performance of these mid-sized private banks or simply missing out on something?

Readers could add mid-cap banks to their watchlist and see if their performance matches expectations.

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.

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.