Goldman Sachs forecasts profit acceleration for Indian banks

Goldman Sachs predicts a cyclical inflection point for the Indian banking sector, forecasting that core Pre-Provision Operating Profit (PPoP) growth will accelerate to approximately 17% year-on-year between FY26 and FY29. This growth is expected to be driven by steady loan growth of around 14%, a recovery in net interest margins, and stable asset quality.

The report anticipates a significant shift in performance between private and public sector undertaking (PSU) banks. Private lenders are expected to outperform, with ICICI Bank and Kotak Mahindra Bank identified as strong risk-reward picks. This advantage is attributed to converging liquidity coverage ratios and the ability to capture a larger share of FCNR(B) deposits.

In contrast, the outlook for most PSU banks is less favorable, with the exception of State Bank of India (SBI). Goldman Sachs expects PSU banks to face increased volatility and potential underperformance due to rising credit costs under the expected credit loss (ECL) framework, moderating treasury gains, and upcoming employee wage revisions scheduled for 2027.