Banking Sector Outlook 2026: Indian banking stocks have been in focus after the end of Q1 results, with the sector reporting decent results in the first quarter of FY27. A report by ICICI Securities suggests that Q1FY27 was a strong quarter for banks, with NII growth hitting a multi-quarter high of 11 per cent and profit growth improving.
However, performance diverged, as large private banks faced margin pressure, while smaller lenders reported stronger NIM and NII growth. Rising NII growth could support a sector re-rating.
Despite the solid overall performance, there was a divergence in performance between private and public sector banks.
Banking sector outlook 2026
As per the latest report from Goldman Sachs, PSU banks remain highly preferred over private banks. Private banks in India have been de-rated over the past five years despite supportive GDP growth and a favourable monetary backdrop, according to Goldman Sachs.
In contrast, PSU banks have outperformed, helped by their low valuation base and improved asset quality.
Goldman Sachs said the de-rating of private banks reflects slower deposit growth, spread compression and a tougher operating environment.
Loan growth, profitability recovery key to re-rating
According to Goldman Sachs, a re-rating of Indian banks hinges on loan growth reviving to 1.5-2.0 times nominal GDP growth.
The brokerage sees profitability recovery as the primary driver of the current cycle’s re-rating. It estimates around 45 basis points of potential profitability uplift over five years through three key levers: ecosystem banking, better risk-adjusted spreads and operating leverage.
Banking stocks outlook
On the stock-specific side, Goldman Sachs prefers Buy-rated ICICI Bank and Kotak Mahindra Bank within the banking sector. Here are the share price targets for top banking stocks across private and PSU banks:
HDFC Bank share price target
Goldman Sachs maintains a BUY rating on HDFC Bank with a target price of Rs 861, implying an upside of 17.7 per cent from the current price of Rs 731.60.
ICICI Bank share price target
Goldman Sachs maintains a BUY rating on ICICI Bank with a target price of Rs 1,935, implying an upside of 36.4 per cent from the current price of Rs 1,418.90.
Axis Bank share price target
Goldman Sachs maintains a BUY rating on Axis Bank with a target price of Rs 1,477, implying an upside of 18.8 per cent from the current price of Rs 1,243.10.
Kotak Bank share price target
Goldman Sachs maintains a BUY rating on Kotak Bank with a target price of Rs 509, implying an upside of 26.2 per cent from the current price of Rs 403.45.
IndusInd Bank share price target
Goldman Sachs maintains a NEUTRAL rating on IndusInd Bank with a target price of Rs 1,020, implying an upside of 1.8 per cent from the current price of Rs 1,001.90.
Federal Bank share price target
Goldman Sachs has set a target price of Rs 425 for Federal Bank, implying an upside of 18.2 per cent from the current price of Rs 359.50. The rating was not stated in the note.
RBL Bank share price target
Goldman Sachs maintains a SELL rating on RBL Bank with a target price of Rs 285, implying a downside of 27.1 per cent from the current price of Rs 391.05.
Yes Bank share price target
Goldman Sachs maintains a SELL rating on Yes Bank with a target price of Rs 22, implying a downside of 3.2 per cent from the current price of Rs 22.73.
IDFC First Bank share price target
Goldman Sachs maintains a NEUTRAL rating on IDFC First Bank with a target price of Rs 92, implying an upside of 6.5 per cent from the current price of Rs 86.36.
AU Small Finance Bank share price target
Goldman Sachs maintains a BUY rating on AU Small Finance Bank with a target price of Rs 1,270, implying an upside of 15.6 per cent from the current price of Rs 1,098.40.
Bandhan Bank share price target
Goldman Sachs maintains a NEUTRAL rating on Bandhan Bank with a target price of Rs 180, implying an upside of 2.4 per cent from the current price of Rs 175.79.
State Bank of India share price target
Goldman Sachs maintains a NEUTRAL rating on State Bank of India with a target price of Rs 1,170, implying an upside of 11.9 per cent from the current price of Rs 1,045.90.
Bank of Baroda share price target
Goldman Sachs maintains a SELL rating on Bank of Baroda with a target price of Rs 245, implying a downside of 0.3 per cent from the current price of Rs 244.84.
Punjab National Bank share price target
Goldman Sachs maintains a SELL rating on Punjab National Bank with a target price of Rs 103, implying a downside of 11.4 per cent from the current price of Rs 116.27.
| Banking Stock | Goldman Sachs Rating | Target Price (Rs) | Upside/Downside |
|---|---|---|---|
| HDFC Bank | BUY | 861 | 17.7% |
| ICICI Bank | BUY | 1,935 | 36.4% |
| Axis Bank | BUY | 1,477 | 18.8% |
| Kotak Bank | BUY | 509 | 26.2% |
| IndusInd Bank | NEUTRAL | 1,020 | 1.8% |
| Federal Bank | Not stated | 425 | 18.2% |
| RBL Bank | SELL | 285 | -27.1% |
| Yes Bank | SELL | 22 | -3.2% |
| IDFC First Bank | NEUTRAL | 92 | 6.5% |
| AU Small Finance Bank | BUY | 1,270 | 15.6% |
| Bandhan Bank | NEUTRAL | 180 | 2.4% |
| State Bank of India | NEUTRAL | 1,170 | 11.9% |
| Bank of Baroda | SELL | 245 | -0.3% |
| Punjab National Bank | SELL | 103 | -11.4% |
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
