Mid-Cap Banks in India: Attractive Valuations Amid Strong Growth

Mid-cap banks have continued their strong run on Dalal Street. Investors are betting that with the RBI taking several steps including the recent repo rate cut to lower cost of funds, it will help banks grow their loan books at an aggressive pace. Also, a spate of M&A deals by foreign players in the mid-cap segment has buoyed investor interest. Mid-cap banks are trading close to their 52-week highs – for instance, IDFC First Bank was down 0.6% in mid-afternoon Tuesday trade at Rs 83.3, and its 52-week high of Rs 84.4 was reached on 15 December 2025. Similarly, Federal Bank was down 1% in mid-afternoon Tuesday trade at Rs 262.5, and its 52-week high of Rs 266.3 was reached on 15 December 2025. And City Union Bank was down 0.8% to Rs 272.2 on mid-afternoon Tuesday trade, and it had reached its 52-week high of Rs 284.2 on 1 December 2025. The key question for investors remains – is it still worth buying mid-cap bank stocks which are trading close to their 52-week highs, or do leading banks like HDFC Bank , Kotak Mahindra Bank and Axis Bank appear more attractively valued. Mid-cap banks despite the current run up in stock prices, still trade at valuations lower than leading private sector banks, HDFC Bank and Kotak Mahindra Bank. Federal Bank trades on a popular valuation metric, price-to-(standalone) book value, at 1.84 times, according to Screener.in. The core banking operations are reflected in the standalone results of the entity. Its price to book value over the past five years, has ranged between 0.8 and 1.8 times, according to Screener.in. IDFC First Bank trades at a price- to-book value of 1.3 times, and over the past five years, it has varied between 1 and 2.5 times, according to Screener.in. And Tamil Nadu-based City Union Bank trades at a price-to-book value of 2 times, and over the past five years, it has varied between 1.2 and 2.4 times. In contrast, Kotak Mahindra Bank, trades at a price-to-(standalone) book value of nearly 3.5 times, and over the past five years, it has varied between 3.1 and 7.1 times. Similarly, HDFC Bank, trades at a price-to-(standalone) book value of nearly 3 times, and over the past five years, it has varied between 2.1 and 4.8 times. The second-largest PSU bank PNB trades at about 1 times price- to- (standalone) book value, and over the past five years, it has varied between 0.3 and 1.5 times. Federal Bank’s return on assets was 0.27 % in the September 2025 quarter, and on annualising it would be nearly 1.08% for FY26. And for IDFC First Bank its return on assets (annualised) was 0.38% in the September 2025 quarter. However, IDFC First Bank is a comparatively new bank, barely 7 years old, and its cost-to-income (excluding trading gains) ratio was nearly 73.8% in the first half of FY26 vis-a-vis 72.8 % during FY25. Over the next few years, the cost-to-income ratio for IDFC Bank is expected to come down quite a bit and this would help to improve its return on assets. And City Union Bank’s return on assets annualised was 1.59% in the September 2025 quarter. Meanwhile, Kotak Mahindra Bank’s return on average assets was 0.47% in the September 2025 quarter, and on annualizing it would be nearly 1.88 % for FY26. And HDFC Bank’s return on assets (average) – not annualized was 0.49% in the September 2025 quarter, and on annualizing for FY26 it would be nearly 1.96%. For PNB, its return on assets (annualised) was 1.05% for PNB Bank in Q2FY26. Federal Bank in the September 2025 quarter has made provisions of Rs 363 crore vis-a-vis Rs 158.3 crore a year earlier. Higher provisioning resulted in Federal Bank’s standalone net profit at Rs 955.3 crore in the September 2025 quarter, a fall of nearly 9.5 % on a y-o-y basis. In contrast, for IDFC First Bank its provisions at Rs 1,451.9 crore in the September 2025 quarter, fell by nearly 16% on a y-o-y basis. Lower provisioning helped IDFC First Bank’s standalone net profit rise 76% y-o-y to Rs 352.3 crore in the September 2025 quarter. Strong loan growth helped the City Union Bank’s net profit rise 15.3% y-o-y to Rs 328.6 crore in the September 2025 quarter. Meanwhile, Kotak Mahindra Bank had made provisions of Rs 947.4 crore in the September 2025 quarter, a rise of nearly 43.5% on a y-o-y basis. A rise in provisions for Kotak Mahindra Bank is understood to be related to provisions on applicable Alternate Investments Funds (AIF) Investments pursuant to various RBI circulars. However, higher provisioning resulted in Kotak Mahindra Bank’s standalone net profit declining nearly 2.7 % y-o-y to Rs 3,253.3 crore in the September 2025 quarter. HDFC Bank had also made provisioning to the tune of Rs 3,500 crore in the September 2025 quarter vis-à-vis Rs 2,700 crore a year earlier. HDFC Bank in its investor presentation had pointed out to floating and general provisions it has made in the September 2025 quarter, to explain the above. Higher provisioning resulted in HDFC Bank’s standalone net profit rising only 10.8% y-o-y to Rs 18,641.3 crore in the second quarter of FY 26 For the second-largest PSU bank, PNB, it’s standalone net profit of Rs 4,903.7 crore in the September 2025 quarter grew 14% on a y-o-y basis. This was on account of its employee costs which were Rs 4,747 crore in the September 2025 quarter, a fall of nearly 17% on a y-o-y basis. Mid-cap banks are poised for rapid growth in the peak credit season coupled with lower interest rates on loans. Investors will be keeping a close eye on the ability of mid-cap banks and larger players like HDFC Bank and Kotak Mahindra Bank to protect their key net interest margin (NIM) and other key operational parameters. Mid-cap banks trade at valuations lower than leading private sector banks. Investors could add mid-cap banks to their watch list. Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information. The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. Amriteshwar Mathur is a financial journalist with over 20 years of experience. Disclosure: The writer and his family do not hold the stocks discussed in this article . 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