Bank stocks grow 8% in December quarter, 2x sensex gain

MUMBAI: Indian bank stocks outperformed the broader market in the Oct-Dec quarter, with valuations rising sharply after GST cuts ahead of the festive season lifted consumption and strengthened expectations of a pickup in credit growth.

Data from S&P Global Market Intelligence show the combined market capitalisation of the top 20 listed banks rose to about Rs 55.7 lakh crore at end-Dec from an estimated Rs 51.5 lakh crore at end-Sept, implying a quarter-on-quarter increase of around 8.2%. This gain exceeded the roughly 4% rise in sensex over the same period, reflecting the banking sector's re-rating driven by improving demand and lending prospects.

Seventeen of the top 20 banks posted increases in market capitalisation, with the median gain at about 11.8%. Smaller private-sector lenders emerged as clear outperformers. IDFC First Bank recorded the sharpest rise, with market capitalisation jumping 43.8%, lifting it to 13th place from 17th in the previous quarter. Bank of India followed with a 38.6% increase, while AU Small Finance Bank, which received RBI's nod to become a universal bank, gained 36.1%. Canara Bank also stood out among larger lenders, with a 25.2% rise, well above the sector average.

Gains among the biggest banks were steadier but supported the overall increase in valuations. HDFC Bank, the country's most valuable lender, saw its market capitalisation rise 4.4% to about Rs 15.2 lakh crore. State Bank of India added 12.6%, broadly in line with the sector median, while Axis Bank and Kotak Mahindra Bank rose 12.1% and 10.4%, respectively. ICICI Bank was an outlier among the top five, slipping 0.3% in the quarter but retaining its second rank by market value.

Public-sector banks, taken together, delivered mostly double-digit gains, led by Bank of Baroda at 14.5%, Union Bank of India at 11% and Indian Bank at 11.5%. However, performance diverged within the group. Indian Overseas Bank and UCO Bank were the weakest outliers, with market capitalisation declines of 8.6% and 3.4%, respectively.

The valuation gains coincided with a supportive macro and policy backdrop. RBI cut the policy repo rate by 25 basis points (bps) to 6.25% in Dec 2025, part of a cumulative 125-bps reduction since Feb 2025, to support lending amid low inflation (1 bps = 0.01%).The Nifty Bank index rose about 7.6% during the quarter, also outperforming the broader market.

"Overall systemic credit growth is showing signs of improvement," Emkay Global said in a Jan 3 note.