Mid-cap private banks are in prominence on Dalal Street on account of their growth prospects coupled with foreign investors taking significant stake in these banks recently.
For instance, Sumitomo Mitsui Banking Corporation had acquired a 24.9% stake in YES Bank at the end of the December 2025 quarter, while Blackstone had earlier announced its plans to acquire 9.99% stake in Federal Bank. Warburg Pincus and Abu Dhabi Investment Authority (ADIA) had earlier taken a significant stake in IDFC First Bank.
Valuation Comparison: Mid-Caps vs. Large-Cap Peers
| Price to (standalone) book value (x) | Standalone P/E | |
| Federal Bank | 2.3 | 18.2 |
| Yes Bank | 1.3 | 21.4 |
| IndusInd Bank | 1.1 | N/A |
| Karur Vysya Bank | 2.3 | 12.7 |
| IDFC First Bank | 1.3 | 49.3 |
| Kotak Mahindra Bank | 3.2 | 30.0 |
| HDFC Bank | 2.7 | 19.6 |
Mid-sized banks trade at valuations much lower than larger private sector banks.
For instance, Federal Bank, trades on the preferred valuation matrix, price to (standalone) book value of about 2 times, according to Screener.in. Other mid-sized private sector banks like Yes Bank trade at 1.3 times on the above valuation matrix, while IndusInd Bank trades at 1.1 times, Karur Vysya Bank Bank trades at 2.3 times and IDFC First Bank trades at 1.3 times.
Meanwhile, leading private sector banks like Kotak Mahindra Bank trade on the above valuation matrix at 3.2 times, according to Screener.in, while HDFC Bank, the largest private sector bank, trades at 2.7 times.
The core banking operations of the above banks are reflected in the standalone quarterly results.
Now, let’s dig into the valuations and operations of the mid-sized private sector banks and their performance in the December 2025 quarter.
Operational Performance: Retail Loans Offset NIM Pressure
Performance in the December 2025 quarter
| Net Interest Margin – NIM (%) | Loan growth (%) | Standalone net profit growth (%) | |
| Federal Bank | 3.18% | 9% | 9% |
| Yes Bank | 2.6% | 5.3% | 55.5% |
| IDFC First Bank | 5.76% | 20.6% | 48.1% |
| IndusInd Bank | 3.5% | -13% | -89% |
| HDFC Bank | 3.5% | 12% | 11.5% |
| Kotak Mahindra Bank | 4.5% | 16.2% | 4% |
Several mid-cap banks increased their NIMs in the third quarter of FY26 and that was thanks to strong growth in retail loans. In contrast, leading private banks like Kotak Mahindra Bank and HDFC Bank faced pressure on NIM in the December 2025 quarter.
For now, let’s focus on four mid-size banks.
Federal Bank
Federal Bank’s net interest margin (NIM) was 3.18% in Q3FY26 vis-a-vis 3.1% a year earlier. It was one of the very few banks in the listed segment that grew on this parameter in the quarter under review.
Its advances grew 9% y-o-y to Rs 2.65 lakh crore in the quarter under review, according to its investor presentation. The bank benefited from its gold loans that grew nearly 12.1% y-o-y to Rs 35,221 core in Q3FY26, while commercial vehicle loans grew 26.2% y-o-y.
Retail loans have higher interest rates vis-a-vis loans to top corporates, and help banks to manage the pressure on NIMs, at a time when RBI is attempting to boost lending in the broader banking system via cheaper credit.
Asset quality of the bank was fairly good – Federal Bank’s provisions were Rs 332.4 crore in the December 2025 quarter vis-a-vis Rs 292 crore a year earlier. The bank highlighted a provision coverage ratio of 75.1% in Q3FY26, which is well above regulatory requirements. Its % of net NPA was 0.42% in Q3FY26 vis-a-vis 0.49% a year earlier.
Strong loan growth helped its net profit rise 9% y-o-y to Rs 1,041.2 crore in the December 2025 quarter.
IDFC First Bank
Its NIM was 5.76% in Q3FY26 vis-a-vis 6.04% a year earlier. Advances grew 20.6% y-o-y to Rs 2.69 lakh crore in the quarter under review. Of crucial importance is that the bank’s retail loans grew 21.6% in the December 2025 quarter, with a 66% surge in gold loans and a 31.9% growth in credit card loans.
Its provisions were Rs 1,398.3 crore in the December 2025 quarter, broadly flat on a y-o-y basis, with its % of net NPAs to net advances at 0.53% in Q3FY26, broadly similar to a year earlier.
Strong growth in retail loans helped IDFC First Bank’s standalone net profit jump 48.1% to Rs 502.5 crore in Q3FY26.
Yes Bank
Its NIM was 2.6% in the December 2025 quarter vis-a-vis 2.4% a year earlier. Advances grew 5.3% y-o-y to Rs 2.57 lakh crore in Q3FY26. To the bank’s credit, retail advances grew 15% y-o-y in Q3FY26 and the bank has highlighted strong growth in rural areas.
Also, its provisions were Rs 21.9 crore in Q3FY26 vis-a-vis Rs 258.7 crore a year earlier, with % of net NPA was 0.3% in the December 2025 quarter vis-a-vis 0.5% a year earlier.
Lower provisions helped its standalone net profit jump 55.5% y-o-y to Rs 951.6 crore in Q3FY26.
IndusInd Bank
IndusInd Bank’s NIM was 3.5% in the December 2025 quarter as compared to 3.9% a year earlier. The bank’s advances dropped 13% y-o-y to Rs 3.17 lakh crore in Q3FY26, according to its investor presentation.
IndusInd Bank is under strict supervision of the RBI, given the clean-up effort of its accounting books and operating processes.
The bank’s provisions were Rs 2,088.6 crore in Q3FY26 as against Rs 1,743.6 crore a year earlier.
A silver lining is that IndusInd Bank has highlighted that its provision coverage ratio (PCR) was 72% in Q3FY26, and similar to levels in September 2025 quarter, broadly in tune with the regulatory requirements.
It does appear that provisioning requirements at the bank have broadly peaked, and investors will be monitoring this parameter very closely over the next few quarters.
Its net NPA (%) was 1.04% in the December 2025 quarter vis-à-vis 0.68% a year earlier.
The impact of weak NIM, fall in advances and a rise in provisions resulted in IndusInd Bank’s standalone net profit crashing nearly 89% y-o-y at Rs 161.2 crore in December 2025 quarter.
Efficiency kings – Return on Assets (RoA)
Federal Bank’s return on assets (not-annualised) was 0.29% in Q3FY26, and on annualising it would be nearly 1.2% for FY26.
Yes Bank’s return on assets (average) (annualized) was 0.9% in Q3FY26.
For IDFC First Bank, its return on assets (annualised) was 0.51% in the December 2025 quarter, given that it is a comparatively young bank.
IndusInd Bank’s return on assets (annualised) was 0.1% in the December 2025 quarter.
Earlier, Kotak Mahindra Bank and HDFC Bank highlighted that they enjoyed identical return on assets (RoA) in the third quarter of FY26, and among the highest in the domestic banking sector.
The return on average assets (not annualised) was 0.48% in the December 2025 quarter for both banks, and on annualising it for FY26 it would be nearly 1.92%.
Growth outlook
Investors will be closely monitoring the mid-sized bank’s growth in loans, especially retail loan growth over the next few quarters.
Also, investors will be watching the role of foreign institutions which have acquired a large stake in mid-sized banks and their growth strategy over the next few quarters.
The RBI had also recently announced a plan to inject Rs 2 lakh crore in the banking system via different instruments and in phases. The above measure should give a further boost to lending in the broader banking system, and also help to bring the cost of loans / credit.
Investors will be closely monitoring Federal Bank, IDFC First Bank, Yes Bank and other leading bank to grow their loan book over the next few quarters as well as manage the pressure on NIMs and other key operational parameters.
Investors on Dalal Street
Mid-sized banks trade at valuations much lower than larger private sector banks.
Credit growth is expected to pick-up over the next few quarters with the RBI taking several steps to boost economic activity, and mid-sized banks are well positioned to leverage the growth opportunities.
Also, with the Indian government entering into free trade agreements (FTAs) with several leading trading partners including the European Union and Australia, this is expected to create new banking opportunities for the broader banking system, including mid-cap banks in the medium term.
Investors will also be keeping a close eye on the plans of foreign banks to work jointly with the local mid-cap banks they have bought a stake, and ramp up the operations to match larger private sector rivals.
Investors can add mid-cap banks to their watch list for 2026.
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.
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