UBS has retained its ‘Neutral’ stance on the Indian banking sector, noting that December witnessed the first month-on-month (MoM) decline in PAR 1-90 (Early Delinquency) in FY25, falling 50 basis points (bps) to 19.1%.
The brokerage expects that if this declining trend sustains, the first half of FY26 (H1FY26) could see a moderation in slippage and credit costs, providing some relief to lenders. Additionally, collections for major lenders improved in December, further signaling an improvement in asset quality.
UBS maintains its preference for HDFC Bank, ICICI Bank, and Federal Bank within the sector, citing their stronger fundamentals. However, it remains cautious on the overall sector given the broader credit cycle dynamics.
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