BNP Paribas has identified HDFC Bank Ltd, ICICI Bank Ltd, and Axis Bank Ltd as its top three preferred banking stocks, citing an anticipated earnings growth revival for the sector in the upcoming fiscal year 2027 (FY27). The global financial services firm outlined its preference for large private banks over non-banking financial companies (NBFCs) in its November 2026 'India Banks and Diversified Financials' report.
According to BNP Paribas, the expected earnings rebound in FY27 is poised to serve as a significant re-rating catalyst for the banking sector. Analysts project benign margin expansion or stable margins for large banks starting in the second half of FY27, which is expected to underpin robust earnings growth momentum throughout the year.
RBI Liquidity Management and Credit Outlook
The report also delved into the Reserve Bank of India's (RBI) ongoing liquidity management efforts. The central bank reportedly neutralized a substantial liquidity inflow of approximately $133 billion arising from FCNR (Foreign Currency Non-Resident) mobilization. This included additional open market operations (OMOs) worth Rs 25,000 crore in October. Despite these interventions, overnight liquidity remained in surplus, hovering around Rs 1.7 lakh crore.
BNP Paribas anticipates durable liquidity to maintain similar levels by the end of October. It expects that potential losses from capital account outflows and measures to defend the rupee will likely be offset by incremental bank credit creation. Consequently, liquidity is not expected to constrain credit growth, barring large and sustained outflows.
The firm maintains its forecast for a 13% year-on-year system credit growth in FY27. As of October 15, 2026, system-wide credit growth stood at 18.2%, with deposit growth at 16.7%. The report highlighted broad-based credit expansion across various sectors, with retail credit growth nearing 20% and strong performance in industrial and services credit.
NBFC Sector Performance and Picks
While prioritizing large private banks, BNP Paribas also noted strong earnings momentum within the NBFC sector. The September quarter marked the fourth consecutive quarter where NBFC earnings growth surpassed 20%. Bajaj Finance Ltd was named BNP Paribas's top pick within the NBFC space, with SBI Cards identified as its highest-conviction pick.
Most prominent NBFCs tracked by the report delivered solid quarterly results, with HDB Financial Services (HDBFS) being the only notable negative surprise. The report indicated healthy asset under management (AUM) growth, ranging between 16% and 37% for most players, excluding HDBFS and SBI Cards. Strong AUM growth among bottom-of-the-pyramid lenders like Shriram Finance and Cholamandalam Investment and Finance Company, coupled with their optimistic guidance, could signal improving economic activity.