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Mid-Cap Banks Outshine HDFC Bank in Growth
3 Nov
Summary
- Mid-cap banks show strong loan book growth, outpacing larger competitors.
- Gold loans are a key driver for profitability in Dhanlaxmi, CSB, and DCB Banks.
- Mid-cap banks trade at significant valuation discounts compared to HDFC Bank.
India's domestic economy has shown resilience, with strong performance in auto demand, housing, and GST collections, even amidst a deficient monsoon and ongoing geopolitical issues. This economic momentum has brought bank stocks into focus, particularly mid-cap private banks with market capitalizations under Rs 10,000 crore.
These mid-cap banks, often operating within specific regions, have leveraged a focus on high-margin gold, SME, and retail loans to defend their Net Interest Margins (NIMs) during a period of soft interest rates. Dhanlaxmi Bank, CSB Bank, and DCB Bank have all reported robust double-digit loan book growth in the September 2026 quarter, with gold loans being a significant contributor.
Dhanlaxmi Bank saw its loan book grow by 23.1% year-on-year, with gold loans increasing by 53.4%. CSB Bank's loan book expanded by 22.2%, driven by a 35.5% surge in gold loans. DCB Bank experienced a 21% overall loan book growth, spearheaded by a remarkable 142.3% increase in gold loans.
Operationally, these mid-cap banks have maintained good asset quality, with declining Net Non-Performing Assets (NPAs) compared to the previous year. Dhanlaxmi Bank's net profit surged by 109.3%, CSB Bank's by 14%, and DCB Bank's by 28.5% in the September 2026 quarter.
Despite their strong performance, mid-cap banks trade at significant valuation discounts to HDFC Bank. Dhanlaxmi Bank trades at 0.8 times price-to-book value, CSB Bank at 1 time, and DCB Bank at 0.9 times, compared to HDFC Bank's 1.9 times. Analysts question whether this valuation gap reflects a mispricing of growth potential, especially as the RBI's recent rate hikes could further improve NIMs.
