No RBI rate cuts in the near-term! Where are banking stocks headed in the next 3-6 months?

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RBI MPC meeting October 2026: The Reserve Bank of India (RBI), on Wednesday, 7 October, raised the repo rate by 25 basis points to 5.50% and signalled a shift towards calibrated tightening, investors may have to wait longer for rate cuts.
"It underscored that given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook,” the central bank said.
Now, the focus is now on whether banks can protect their margins, sustain credit growth and manage funding costs over the next three to six months.
According to Gaurav Garg, Head of Research at Lemonn, large private-sector lenders could hold up better than the broader market following the RBI’s rate hike.
“The RBI’s 25 bp hike to 5.50%, with the stance moved to “calibrated tightening,” reverses the margin squeeze of the 2025 cutting cycle. Loans linked to external benchmarks reprice within weeks, while term deposits reset only on renewal,” Garg said.
Meanwhile, Seema Srivastava, Senior Research Analyst at SMC Global Securities, said that higher interest rates could increase deposit mobilisation costs, moderate credit demand and put pressure on net interest margins (NIMs), particularly for banks facing intense competition for low-cost deposits.
“The impact is unlikely to be uniform across the sector, as strong credit growth, improving balance sheets and robust domestic economic activity provide a cushion against monetary tightening. The RBI’s upward revision of FY27 real GDP growth to 7.1% also supports the outlook for sustained credit demand and corporate earnings,” said Srivastava.
The latest Q2 FY27 business updates point to continued growth in advances and deposits among several leading lenders.
HDFC Bank reported year-on-year deposit growth of 18.8% and advances growth of 16.3%. Srivastava said the bank’s deposit franchise and relative stability make it a preferred candidate in the current environment.
Axis Bank reported advances growth of 22.7% and deposit growth of 20.7%. Its core advances grew 18.8% after excluding FCNR(B)-backed leverage operations, indicating healthy underlying lending momentum.
Kotak Mahindra Bank recorded advances growth of 24.7% and deposit growth of 23.2%. However, the contribution from FCNR(B) inflows warrants monitoring, as investors assess the sustainability and composition of its funding growth.
Yes Bank also reported advances growth of 23.8% and deposit growth of 19.5%, while IDBI Bank’s total business expanded 18%. In contrast, IndusInd Bank’s relatively moderate advances and deposit growth, along with a CASA ratio of 28%, highlights the importance of strengthening its low-cost funding base.
Srivastava further explained banking stocks may witness consolidation and selective valuation corrections as investors reassess earnings growth and margin sustainability in a higher-for-longer interest-rate environment, in the near-term.
“Nevertheless, quality private-sector banks remain attractive for investors with a long-term perspective. HDFC Bank stands out for its strong deposit franchise and relative resilience, while Axis Bank offers healthy growth momentum and Kotak Mahindra Bank provides an alternative for investors seeking sustained expansion. Overall, the sector’s outlook is likely to favour banks with strong liability franchises, disciplined underwriting and stable asset quality rather than those relying primarily on aggressive credit growth,” she added.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Vaamanaa covers business and stock market news. Started in 2020, she has been producing news on digital platforms for over 4.5 years now. She writes on markets, commodities, IPOs, and industry. She has worked for news channels like Jagran New Media and Business Insider India. You can reach out to her at vaamanaa.sethi@htdigital.in.
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