Indian Banks Poised for Accelerated Profit Growth as Goldman Sachs Sees 17% Growth
Indian banks are poised for accelerated profit growth as they approach a cyclical inflection point. According to Goldman Sachs, core Pre-Provision Operating Profit (PPoP) growth is expected to accelerate to approximately 17% year-on-year over FY26-FY29E, representing 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 financial sector is showing initial signs of operational recovery.
Goldman Sachs' proprietary GS India Banks Leading Indicator points to a gradual improvement in the sector, driven by healthy GDP growth, improved liquidity from RBI measures, and easier funding conditions. The report highlighted that private bank valuations have dropped near 15-year lows, falling below levels seen during the COVID-19 pandemic.
However, there are key risks to these projections. Loan growth assumptions face pressure if competitive intensity exceeds expectations or if the recovery in retail credit demand remains slower than anticipated. Additionally, deteriorating asset quality within the micro, small, and medium enterprise (MSME) segment presents the potential for higher credit costs.