Indian Banks Rebound: Asset Quality Improves Amid Optimistic Outlook

A new Goldman Sachs report is a potential turning point for the Indian financial sector with preliminary signs of improved asset quality and operating profitability emerging. The sector, which has seen persistent earnings downgrades, can look forward to these pressures easing by the first half of FY26.

 

The report observes stabilisation in the majority of loan segments, particularly unsecured loans, but observes challenges in business banking loans for NBFCs. Asset quality improvements are observed through bureau data, reflecting moderation in slippages—bad loans turning bad—starting from the second-half of FY26. The shift is expected to reduce credit costs in the long run.

 

While nearer-term issues of weak credit growth, falling net interest margins (NIMs), and increasing credit costs are issues, overall sentiment is upbeat. The report predicts modest year-on-year (yoy) declines in earnings per share (EPS) of about 2% in FY26 but anticipates pre-provision operating profit to return on assets (PPOP-ROA) ratios to remain robust.

 

Goldman Sachs also mentioned that interest rate reductions of up to 100 basis points can also help in supporting the recovery. Although near-term trends may continue to remain soft, the report states the sector is at the bottom of its current cycle. The enhanced asset quality and operating profitability bring optimism that the worst may be over for Indian financials.

 

Source: ANI via The PRINT