The focus remains on PNB, Canara Bank, SBI, BOB, BOI as InCred Equities predicts PSU banks will have a mixed outcome. The report indicates PSU banks will experience reduced profitability because savings deposits have limited repricing options yet analysts identify specific state-owned banks for positive growth.
The top pick among them is Punjab National Bank (PNB) because it benefits from reduced credit costs and written-off account recovery possibilities and tax benefit potential. The analysts recommend Canara Bank because it offers reasonable valuations together with expected credit cost moderation.
The valuation-related constraints have led analysts to assign a ‘Hold’ rating to State Bank of India (SBI) and Bank of Baroda (BOB). Bank of India (BOI) faces both profitability and liquidity issues which lead analysts to maintain a cautious outlook.
The PSU bank sector delivered better performance than private banks from March 2021 until July 2024 but experienced a 15% price correction because of slowing growth and repo rate uncertainty. The price-to-book valuation re-rating from 0.6x to 1.3x now appears unlikely to persist.
Non-SBI PSU banks will grow at 12–13% through FY26–27 based on their ability to attract deposits and maintain strong balance sheets.
