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Explained: Why banking stocks are red hot todayLarge banking stocks gain focus as DICGC shifts to risk-based premiums from April 2026, lowering costs for strong banks. SBI’s robust Q3 results further boost sector sentiment and earnings outlook.By Gaurav Jawalkar   |  Anshul  February 9, 2026, 12:00:42 PM IST (Updated)3 Min ReadLarge banking stocks — across both private and public sector — have come into focus in February as investors price in a structural change in deposit insurance premiums that will take effect from April 1, 2026.

The shift is expected to lower costs for stronger banks, lift profitability, and influence earnings estimates for FY27 — making it a key theme for bank stocks in the near term.

At the same time, strong quarterly results from State Bank of India (SBI) have added momentum to the sector, reinforcing the view that earnings — not just policy changes — will drive the next leg of gains.

What exactly is changing?

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is moving away from a flat, decades-old pricing model to a risk-based premium system.

Since 1962, all banks have paid a uniform premium of 12 paise per ₹100 of assessable deposits, regardless of their financial health.

From April 1, 2026, premiums will vary based on each bank’s risk profile, determined by supervisory ratings, capital adequacy, asset quality, liquidity, and profitability. Some well-established banks may also receive a “vintage” discount.

New DICGC premium structure

CategoryNew premiumChange vs earlierA8 paise33.3% cutB10 paise16.7% cutC11 paise8.3% cutD12 paiseNo change

Why this matters for banking stocks

Most large private banks — and a few stronger PSU banks — are expected to fall in Category A or B, meaning they will pay materially lower premiums than before.

Analysts estimate this could:

Reduce operating expenses by 1.5–3% in FY27

Boost earnings by 1–2%, depending on final ratings and deposit base

Because deposit insurance costs form a meaningful share of bank expenses, even small reductions can translate into visible profit gains — a key reason investors are watching this closely.

How big are these costs today?

In FY25, DICGC premiums formed a noticeable chunk of operating expenses for several banks:

BankDICGC as % of operating expensesBank of Baroda5.30%Canara Bank6.00%SBI4.60%HDFC Bank4.10%ICICI Bank4.00%Axis Bank3.30%Kotak Mahindra Bank2.90%IDFC First Bank1.50%

Impact on private banks vs PSU banks

Large private banks (HDFC Bank, ICICI Bank, Axis Bank, Kotak) are widely expected to land in A or B categories, implying clear cost savings.

PSU banks may also benefit if they secure higher ratings, but analysts believe the biggest near-term gains will accrue to well-capitalised banks with cleaner balance sheets and strong liquidity profiles — many of which are private.

So this is not just a PSU story — it is a sector-wide earnings catalyst.

SBI rally adds fuel to banking stocks

Beyond the DICGC change, SBI shares have been a standout performer, lifting overall sentiment toward banking stocks.

On February 6, SBI emerged as the top gainer on the Nifty 50, rising 6% — its biggest single-day jump since June 2024 — after a strong Q3 update.

What drove SBI’s surge?

SBI reported a 24% YoY rise in net profit in the December quarter and outperformed private peers on key metrics:

Loan growth better than ICICI Bank and HDFC Bank

Stable net interest margin (NIM) at ~3%

Strong asset quality with recoveries supporting profitability

RoA above 1% and RoE above 20% — considered very healthy for a large PSU bank

Street consensus suggests SBI could rise to ₹1,189.38, about 11% upside from recent levels. The stock is already up 44% in the last year.

Motilal Oswal’s Nitin Aggarwal even said SBI could outshine the growth of the top three private banks in the coming period.Continue Reading(Edited by : Anshul)First Published: Feb 9, 2026 10:19 AM ISTTagsdeposit insuranceDeposit Insurance and Credit Guarantee CorporationinsuranceSBI