New Delhi, June 26 -- India's banking sector is set for a potential re-rating as asset quality remains resilient, but loan growth may remain moderate, as per Kotak Institutional Equities.

According to the report, asset quality is unlikely to be a concern in the near term, with both public and private sector banks expected to report lower slippages. However, banks may increase coverage buffers as they transition towards expected credit loss (ECL) norms.

"Valuations remain attractive despite recent outperformance, with scope for multiple expansion and earnings compounding," it noted.

Kotak noted that retail loan quality has strengthened compared to FY23 and pre-COVID levels, supported by tighter underwriting standards since FY24. Also, "...