New Delhi, June 26 -- Frontline private banks are well positioned to outperform as attractive valuations, resilient asset quality, improving funding dynamics, and the potential for earnings-led re-rating create a favourable investment case, according to Kotak Institutional Equities.

The brokerage has retained an overweight stance on leading private lenders, preferring HDFC Bank and ICICI Bank, while State Bank of India (SBI) remains its top pick among public sector banks. It believes the sector is entering a phase in which valuation re-rating will be supported by higher loan yields, lower funding costs, and steady earnings growth rather than rapid credit expansion.

Kotak said two developments could act as catalysts for banking stocks. T...