Indian Private Banks Face Persistent Headwinds: Goldman Sachs

Private banks in India have underperformed over the past five years despite a favorable macroeconomic environment. According to Goldman Sachs, slower deposit growth, compression in risk spreads, and a more challenging operating environment are weighing on their growth and returns.

The brokerage expects these structural pressures to persist, making it crucial for private banks to penetrate deeper into customer wallets, expand into higher-margin commercial retail segments, and leverage their operations. A sustained re-rating of private banks will depend on loan growth reviving to 1.5-2 times nominal GDP growth, alongside an improvement in profitability.

Goldman Sachs favors ICICI Bank as its top pick, citing the lender's early start to a customer-centric approach, superior organisational structure, and multipurpose branch ecosystem. The bank has also approved a $5 billion overseas borrowing limit.