Indian Banks Eye Rebound as Goldman Sachs Forecasts 17% Core Earnings Growth

Indian banks are approaching a cyclical inflection point after three years of consistent downgrades in core earnings, according to Goldman Sachs. The investment firm expects core Pre-Provision Operating Profit (PPoP) growth to rebound to approximately 17% year-on-year over FY26-FY29E.

This represents a sharp reversal from the moderate earnings observed over the past few years. The projection is underpinned by steady loan growth of around 14%, a 10 basis points recovery in net interest margins (NIM) from an FY27 trough, and benign asset quality, despite near-term macroeconomic and geopolitical uncertainties.

The Goldman Sachs report highlighted that structural headwinds across the sector appear fully factored into current market multiples. Private bank valuations have dropped near 15-year lows, falling below levels seen during the COVID-19 pandemic, and currently 'screen as attractive compared to regional Asian peers.'

The turnaround follows a three-year period marked by consistent downgrades in core earnings. Between FY24 and FY26, core PPoP recorded a compound annual growth rate (CAGR) of 9% for private banks and 5% for state-owned enterprises (SoE) banks.