Banking Stocks to Watch on Diwali 2026: Credit Growth, Deposits, and Asset Quality

This Diwali is a great opportunity to review your portfolio and see which businesses will be performing well in the future. As part of Muhurat trading, you can consider which listed banking stocks will perform well in Samvat 2083 by looking at their earnings potential, loan growth, deposit mobilisation, and asset quality.

Looking at banking stocks can give you exposure to demand for credit in India. However, just because a bank has strong credit growth, it doesn’t mean that it will make a good investment. You’ll want to look at how they are funding their loans, whether they have sustainable margins, and whether the stock is trading at the right level.

Banking Stocks to Watch this Diwali

When looking at banking stocks on Diwali 2026, you’ll want to look at a mix of large private banks and public banks. These will have different business models and will be funded differently. The banks listed below are worth looking at.

1. HDFC Bank

HDFC Bank is a great option to look at as it has a strong lending business. In Q2 FY27, gross advances increased by 16.3% year-on-year and total deposits increased by 18.8%. Net interest income increased by 9.7% to ₹34,620 crore. The bank also had a reduction in gross NPA to 1.11%.

This shows that the business has been growing and asset quality has improved. However, you’ll want to look at the net interest margin, deposit mix, and costs. The bank had a net interest margin of 3.16% of total assets and 3.32% of interest-earning assets.

For Samvat 2083, you’ll want to look at whether the bank can sustain credit growth and whether funding costs are being kept under control. Compare the valuation to the price-to-book ratio, return on assets, and return on equity historically to see if you’re getting a good margin of safety.

2. ICICI Bank

ICICI Bank is another private bank to look at. The bank will perform well if it can sustain credit growth, have a good deposit mix, and make good earnings. Advances grew by 30% year-on-year, and deposits grew by 27.1% in Q2 FY27. Net profit increased by 20.1% to ₹14,843 crore.

However, the net interest margin reduced to 4.18% from 4.30% in the previous quarter and 4.36% in the last quarter. The bank had a reduction in gross NPA to 1.20% and net NPA to 0.30%. You’ll want to look at whether the bank is seeing sustainable earnings from credit growth and whether it has a good deposit mix. Compare the valuation to other private banks.

3. Axis Bank

Axis Bank is a great bank to look at for credit growth, deposit growth, and improving asset quality. Advances grew by 23% year-on-year, and deposits grew by 21%. Net interest income grew by 12% to ₹15,371 crore. The bank had a net interest margin of 3.36%. The bank had a reduction in gross NPA to 1.16% from 1.46% in the previous year. Net NPA reduced to 0.35%.

For Diwali 2026, you’ll want to look at the deposit costs, CASA ratio, credit costs, and expenses. You’ll also want to look at whether earnings can be sustained without seeing a large reduction in margins. The valuation of the bank will become more relevant when compared to the return on equity, book value, and historical valuation.

4. SBI (State Bank of India)

SBI gives you exposure to a large public bank. The bank has a wide customer base and lends to the retail, agricultural, and corporate sectors. Look at the credit growth and deposit growth. You’ll want to look at the loan mix, funding costs, and recovery from bad loans.

Public banks can benefit from increased demand for credit and improved asset quality. However, they can be affected by treasury performance, expenses, and credit costs. Look at the return on assets, return on equity, and price-to-book ratio for Samvat 2083. The bank may be trading at a lower valuation than other private banks due to differences in profitability, growth, and risk. This will give you an idea of whether it’s fairly valued.

Metrics to Look at Before Investing

Each of the banks listed above will have different business models and metrics. To compare them effectively, look at the metrics below to see how they are performing and what risks they have.

1. Credit Growth

Credit growth is how much a bank’s loans have grown over a certain period. A bank with strong credit growth can help with interest income. However, you’ll want to look at the quality of the loans. Look at how much retail, MSME, and corporate credit growth has increased year-on-year and sequentially. Compare this to historical performance and the banking sector.

2. Deposit Growth

Deposits will be a major source of funding for a bank. If the bank has seen credit growth outpacing deposit growth for a long period of time, it may need to pay more for deposits. Compare the deposit growth to credit growth. If this is increasing, it can show that the bank is under more pressure to fund. This should also be looked at in conjunction with liquidity.

3. Net Interest Margin

Net interest margin shows the difference between interest earned on assets and interest paid on liabilities, relative to the relevant average earning asset. A higher net interest margin can help profitability. However, you’ll want to compare this using consistent metrics. Some banks may have a lower net interest margin but can be making good returns due to efficiency, fee income, and credit costs.

4. Asset Quality

Asset quality will show how well the bank is managing its lending risk and recovering money. Look at the gross NPA and net NPA ratios. Gross NPA shows how much of the bank’s loans are non-performing. Net NPA shows this after certain provisions. Also, look at credit costs, new slippages, coverage, and recovery. While it’s great to see a reduction in NPA, this should be sustainable with good collections and control of bad loans.

Risks to Consider

Banks will still be exposed to interest rate movements, funding costs, and economic conditions. If the economy is slowing, borrowers may struggle to repay. Banks can also suffer from aggressive deposit competition, reducing profitability.

Look at how much the bank is lending in the unsecured retail sector, corporate exposure, concentration risk, and provisions. Public and private banks may react differently. Remember that even if the bank is doing well financially, it may not be a good investment if it’s trading at a high valuation. Look at the latest quarterly results, comments from management, and relevant disclosures.

Bottom line

HDFC Bank, ICICI Bank, Axis Bank, and SBI are a great place to start when looking at banking stocks on Diwali 2026. Compare their credit growth, deposit growth, net interest margins, asset quality, and valuation. Look at each bank individually and compare the valuation to relevant peers. See if the potential returns justify the risk.

Researching banking stocks this Diwali? Visit HDFC SKY MoneyFest for expert stock recommendations, then assess company fundamentals, valuations and risks before investing.