Goldman Sachs Ratings Move SBI, ICICI And Yes Bank Down While HDFC Stays On ‘Buy’ (Image: X.com/TheOfficialSBI)

Goldman Sachs has downgraded three of India’s major banks. The State Bank of India (SBI), the Industrial Credit and Investment Corporation of India (ICICI) and the Yes bank are the banks which have been downgraded. At the same time, the firm upgraded Bajaj Finance and reiterated buying on Housing Development Finance Corporation bank (HDFC).

The investment bank and financial services firm, Goldman Sachs is of the view that the Goldilocks period or the period of strong growth and profitability for the financial sector is simmering down. The firm also indicated of increasing headwinds ahead. The firm’s analysts said that the with the financial sector’s earnings being faced with many challenges, they have cut the estimates of earnings of companies by five percent in their coverage and two percent on an average over the financial years 2025-26, the mint reported. The banks, SBI, ICICI and Yes bank has been downgraded due to the numerous challenges seen ahead for them.

The firm highlighted on the headwinds, mainly that, the challenges in the funding environment has caused increased pressure on the cost of funds. Other concerns are on the increasing consumer leverage which was leading to asset quality challenges and the pressure on operating costs because of the high wage inflation and the necessity to expand the network of distribution for deposit growth in future. Even with these challenges, the firm noted that the sector valuation stood at a comfortable level, reported the CNBCTV18.

The Indian banks have seen an expansion in their return on assets during the period, FY20-3QFY24 and now it could be moderated due to the pressure on margins and could see a slow pace in the growth of loans, the firm said. In order to keep the cost to income on an elevated status, the sector would have to repair its balance sheet along with capacity building, added the firm.

SBI and ICICI has been have been kept at ‘neutral’ from ‘buy’ and Yes bank has been kept at ‘sell’ from ‘neutral.’ As per Goldman Sachs, it’s a four percent downside for SBI, and a thirty seven percent downside for Yes Bank. ICICI has been kept at a three percent upside. Meanwhile, the ‘buy’ ratings are on for HDFC bank with a thirty three percent upside and Bajaj Finance has been upgraded to ‘neutral’ from the earlier ‘sell’ as it sees a two percent upside for its stocks.