CLSA Highlights Top Banking Sector Picks: ICICI Bank, SBI, Bandhan Bank, and HDFC Bank
July 21, 2025 | By Sumana Sarkar
The banking sector has gained notable attention recently following the release of key financial results over the past weekend. Prominent brokerage firms have updated their recommendations on banking stocks, offering investors strategic insights into potential market movers. Among these, CLSA has unveiled its top banking sector picks, featuring leading names like ICICI Bank, State Bank of India (SBI), and Bandhan Bank, with an updated outlook on HDFC Bank as well.
Here’s an in-depth look at CLSA’s analysis and recommendations for these banking giants:
CLSA’s Top Picks: Large Caps and Midcaps
CLSA identifies ICICI Bank and State Bank of India as its primary large-cap banking stock picks. Among midcaps, Bandhan Bank stands out as a preferred choice. The brokerage has also revised upward the target price for HDFC Bank, reflecting confidence in its future performance.
HDFC Bank: Maintaining Outperform with Raised Target Price
CLSA retains an Outperform rating on HDFC Bank, alongside an increased target price of ₹2,300 per share. This new target reflects an estimated upside of about 18% from current trading levels, incorporating CLSA’s revised lower cost of equity assumptions.
- Loan Growth Forecast: The brokerage projects an 11% loan growth in FY26, accelerating to 15-16% in subsequent years.
- Net Interest Margin (NIM): A modest 10 basis points moderation in NIM is expected in FY26 compared to FY25, with a rebound anticipated by FY27.
- Growth Outlook: HDFC Bank is expected to achieve a compounded annual growth rate (CAGR) of 15% from FY25 to FY28. CLSA also underscores an encouraging uptick in HDFC Bank’s CASA (Current Account Savings Account) deposits, which grew by 4% quarter-on-quarter in Q1 after several quarters of minimal change. This suggests a shift in management’s focus from solely deposit quantity to enhancing deposit quality, especially after the bulk of Loan-to-Deposit Ratio (LDR) reduction efforts.
On asset quality, HDFC Bank’s gross and net slippage ratios stood at 1.4% and 0.7%, respectively, consistent with prior Q1 figures where seasonality influences agricultural slippages. Notably, management’s assurance of no issues within unsecured loan portfolios adds a positive dimension to the outlook.
ICICI Bank: ‘Outperform’ with Strong Margin and Stable Asset Quality
CLSA maintains its Outperform recommendation on ICICI Bank, setting a target price of ₹1,700 per share, implying a 19% upside from current prices.
Key highlights from CLSA’s analysis include:
- Net Interest Income (NII): ICICI Bank is unique among CLSA’s coverage for reporting sequential NII growth, despite a challenging environment marked by sharp interest rate cuts.
- Net Interest Margin: Adjusted for one-off items and accounting factors, ICICI Bank’s NIM decreased marginally by only 5 basis points quarter-on-quarter to 4.34%. This performance outstrips peers, who suffered core NIM compressions between 11 to 13 basis points.
- Loan Growth: Loan growth slowed to around 11-12% year-on-year, reflecting weak credit demand and a strategic focus on profitable growth segments.
- Retail Segment: Retail loan growth moderated to approximately 7% year-on-year, with mortgages being the primary growth driver. Other areas such as vehicle finance, unsecured personal loans, and credit cards displayed minimal or no growth.
- Unsecured Loans and Business Banking: Management anticipates pickup in unsecured loan growth later this year, buoyed by stable asset quality. Business banking continued robust momentum with a 30% year-on-year increase.
- Deposit Trends: Overall deposit growth slowed to 13% year-on-year due to a reduction in wholesale deposits. However, CASA deposit growth matched overall deposit growth, a positive indicator unlike many peers where CASA growth lags deposits.
Asset quality remains steady with a gross slippage ratio improvement of 15 basis points year-on-year to 1.9%. Credit costs are estimated within the 50-55 basis point range.
CLSA indicated that while the full impact of recent repo rate reductions has yet to be felt in margins—less than half of the 100 basis points cut appears to have been passed on—they expect NIM’s bottoming in Q2. —
Broader Market Context and Insights
Following these updates, investors keen on monitoring indices like the Nifty 50 and BSE Sensex will find CLSA’s banking sector picks a useful guide when constructing or refining portfolios amid evolving market dynamics. For real-time market updates, stock analysis, and expert advice, platforms like The Financial Express and their associated mobile applications remain valuable resources.
Related Recommendations and Sector Updates
In addition to CLSA, other brokerage houses have also issued noteworthy sector calls, including:
- Motilal Oswal’s “Buy” recommendations with projected upside potential up to 50%.
- Jefferies’ identification of promising pharma and auto stocks.
- Focus on cement stocks amid evolving green initiatives.
- Upcoming India-EU Free Trade Agreement talks influencing market sentiments.
For investors tracking the banking sector, CLSA’s endorsement of ICICI Bank, SBI, Bandhan Bank, and an optimistic outlook on HDFC Bank provide a strategic foundation amid a landscape marked by asset quality vigilance, fluctuating loan demand, and shifting deposit dynamics.
This article was first published on July 21, 2025, and will be updated with further market developments.
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