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Shares in state-run banks including top lender State Bank of India (SBI) and Bank of Baroda (BOB)
"We believe Indian banks, especially high-beta PSU banks, could be at the cusp of re-rating given improving macro and likely political clarity post the upcoming elections," the Wall Street bank said in a note to the clients on Thursday.
Macro recovery and potential for post-election reforms could lead to a gradual reduction in stressed loans, it said.
Significant reforms under a stable government could lead to valuation re-rating in particular for PSU banks, that could provide a 66 percent average upside in our view as stressed loans could fall sharply to 4.7% from 10.5% by FY18, Goldman says.
Return on assets could move up to 1% by FY18 from 0.5-0.6% now, it said.
Shares in SBI closed 3.9% higher, Bank of Baroda was up 2.4% and Punjab National Bank rose 3.8%.
