Mid-cap banks revive. But not all will rally

The Street is positioning mid-cap banks at the front of the next financial sector rally, betting on stronger small-business and retail loan growth in 2026 and easing funding costs.

- Abhinaba Saha

Investors view these lenders as prime beneficiaries of the next credit upcycle, given their increased exposure to high-yielding retail and micro, small and medium enterprise (MSME) loans.

Credit to micro and small enterprises jumped 26% year-on-year in October, the strongest in two years, while medium enterprise lending climbed to a six-month high of 18% after a soft patch, Mint’s analysis of Centre for Monitoring Indian Economy’s latest data showed.

Retail credit growth also picked up to a 14-month high of 14% in October, though it remains below the 25%-plus surge last seen in July 2024. More importantly, these segments outpaced overall system credit growth of 12.5%, which itself hit a 3-month high during the same period.