The twin calls are framed against a tightening backdrop where liquidity has funded credit growth and where Nomura believes funding costs are rising despite policy easing, and net interest margin (NIM) recovery will be delayed for the industry.
Kotak Mahindra Bank shares were trading 2% higher at Rs 364.25 on BSE this morning. ICICI Bank was up around 1.5% at Rs 1241.5 on BSE. The brokerage has a target price of Rs 445 on Kotak and Rs 1,535 on ICICI Bank.
At the heart of the thesis is Nomura’s contention that the improvement in system credit growth from 10% to 14.9% year-on-year since mid‑2025 “has been built on borrowed time,” funded by banks drawing down liquidity buffers rather than by “strong deposit mobilisation,” pushing the system credit‑deposit ratio to 82% versus a 10‑year average of 75%.
“Liquidity‑funded growth has a ceiling,” the report warns, arguing that as buffers moderate, “sustaining credit growth will require deposit growth to pick up,” even as government spending and foreign exchange inflows – the “two key enablers” of deposit creation – are currently “running below what is needed.”
Against this macro backdrop, Nomura has cut NIM estimates across banks, treating the 700‑basis point slide in system CASA ratios from FY22 peak to 37.9% as “structural rather than cyclical” and now baking in “continued gradual decline” in CASA and “slower improvement” in cost of funds, which together mean NIM recovery is “likely to be delayed” into the second half of FY27.
That is precisely why the brokerage says it now “prefers banks with liquidity buffers and strong liability franchises,” and why Kotak Mahindra Bank “stands out most clearly on both counts.” On liquidity, Nomura highlights that Kotak’s liquidity coverage ratio (LCR) of 135% gives it one of the deepest buffers in the peer set, well above the 115% comfort floor it uses; by its estimates, simply allowing LCR to normalise to 115% would let Kotak grow its loan book by 4.8% from liquidity release alone, versus near‑zero headroom for HDFC Bank and Axis Bank.
On liabilities, Kotak scores in the “leading cohort” on all four of Nomura’s franchise metrics: retail deposits account for 66% of funding, short‑tenor wholesale funding is low, CASA stands at 41%, and borrowings make up just 5% of the funding mix, leaving it far less exposed to rising wholesale rates than peers where borrowings are in the mid‑teens.
Valuation is the other leg of the upgrade. Nomura points out that Kotak now trades at around 1.5 times FY27 forecast core bank book value, which it calls “inexpensive” and a “multi‑year low,” even as it is modelling 16‑17% loan and deposit compounded annual growth and 17‑18% core pre‑provision operating profit and earnings CAGR over FY26‑28.
“KMB scores best on both dimensions of our framework… The positives are not reflected in current multiples. We upgrade KMB to Buy,” the report states, placing it ahead of Axis Bank and ICICI Bank in its order of top picks. That marks a shift from Nomura’s previous “Neutral” stance on Kotak, with the new target price set at ₹445 per share based on a 1.8 times Dec‑27F BVPS multiple, only marginally trimmed from ₹460 even after factoring in NIM cuts.
If Kotak is the “cleanest expression” of Nomura’s framework, ICICI Bank is cast as the steady compounding engine that investors can continue to ride. “ICICIBC… is our preferred compounder, with a sector leading profitability profile,” the brokerage writes, noting that it combines a healthy 125% LCR with a strong liability franchise where CASA is about 40% and borrowings are roughly 6% of funding. On growth, Nomura expects ICICI’s loan CAGR at 13% and EPS CAGR at 15% over FY26‑28, supported by robust core profitability, and values the core bank at 2.3 times Dec‑27F BVPS, assigning ₹212 per share to subsidiaries to arrive at a target price of ₹1,535.
Even after cutting NIM estimates by 5–7 basis points in FY27‑28 and trimming FY27‑28 EPS by up to 2%, its forecasts remain anchored in a high‑return profile with RoE around 16% and RoA at 2.2–2.3% over the next three years.
Importantly, ICICI also scores well on Nomura’s composite “liability franchise scorecard,” appearing alongside Kotak and State Bank of India in the leading cohort across most of the four dimensions the brokerage tracks – retail deposit share, short‑tenor wholesale funding exposure, CASA ratio and borrowings mix.
In contrast, the report flags IndusInd Bank, Yes Bank, Axis Bank and HDFC Bank as being “consistently in the lagging cohort” on multiple liability metrics, which makes their NIM trajectories more vulnerable in an environment where wholesale rates are rising and system CDs already stand at 2.7% of deposits.
That divergence is why, even though Axis Bank offers the strongest modelled EPS CAGR of 24% in FY26‑28 and remains a “Buy,” ICICI is still described as the more durable “quality compounder” in the large‑private‑bank pack.
The backdrop to these stock calls is a sharp valuation reset that Nomura thinks has gone too far for select private banks. It notes that “most private banks have de‑rated materially” on price‑to‑book since FY22, with Kotak dropping from an average 3.6 times one‑year forward book then to about 1.5 times now, while PSU banks such as SBI and Bank of Baroda have rerated from earlier troughs.
Following its NIM revisions, Nomura’s earnings estimates are now below consensus for most banks, but the firm argues that this reset, combined with structural advantages in liquidity and liabilities, creates a favourable “valuation setup” for names like Kotak and ICICI that it believes can still deliver healthy growth without over‑reliance on expensive wholesale funding.
In other words, in a banking system Nomura says is up against a macro‑driven deposit constraint, it is doubling down on those lenders it thinks are best placed to grow prudently and compound returns – Kotak as the newly rediscovered value‑plus‑quality story, and ICICI as the bank that has already been compounding and, in its words, remains “our preferred compounder.”