PERFORMANCE OF PUBLIC SECTOR BANKS

PERFORMANCE OF  PUBLIC SECTOR BANKS

 IN THE LAST ONE YEAR 

DFS APPLAUDS PERFORMANCE OF PSBS  during  H1 2025-26

Dated 13.11.2025 :  The Secretary of the Department of Financial Services (DFS), Shri M. Nagaraju, appreciated the consistent performance of PSBs in a review meeting held yesterday in New Delhi with the Managing Directors and Chief Executive Officers of Public Sector Banks (PSBs) to assess their performance for the H1 FY 2025–26. 

Public Sector Banks have reported a net profit of ₹93,675 crore during April to September 2025, reflecting steady year-on-year growth. Aggregate business stood at ₹261 lakh crore as of September 2025, with advances growing by 12.3 percent (y-o-y) and deposits by 9.6 per cent (y-o-y). The Gross NPA ratio of PSBs declined to 2.30 per cent and Net NPAs to 0.45 per cent, indicating continued improvement in asset quality. The Return on Assets was 1.08 per cent while the cost of funds improved to 4.97 per cent, reflecting better efficiency and profitability.

 For further details of the meeting, CLICK HERE 

Dated 04.11.2025 : The performance of Public Sector Banks (PSBs) over the last year has been exceptionally strong and has turned the sector into one of the top performers in the Indian stock market.

 Overall PSB Sector Performance (Last 1 Year)

The entire Public Sector Banking space has seen a major positive structural shift, reflecting in the benchmark index’s performance:

• Nifty PSU Bank Index: The index, which tracks the performance of major PSBs, has delivered significant returns over the last 12 months, with some recent reports indicating a surge of over 24% just in the recent months (since September). The general sentiment for the sector is a strong upward momentum

This rally is fundamentally driven by:

1. Cleaner Balance Sheets: A sharp decline in Gross and Net Non-Performing Assets (NPAs).
2. Robust Profitability: Consistent strong quarterly net profits and improved Return on Assets (ROA) and Return on Equity (ROE).
3. Attractive Valuations: Even after the rally, many PSBs are still considered undervalued compared to private banks, leading to a “re-rating” of the sector.

 The Superb Performers (The Leaders of the Rally)

While the entire sector has done well, the best returns have typically come from the mid-sized and some large PSBs who have shown the maximum financial turnaround.

The key takeaway is that the rally is broad-based, affecting almost all major PSBs, not just one isolated stock. The market is rewarding the entire group for their collective and consistent improvement in financial health over the past few years.

Based on the most recent publicly available quarterly data for three of the top-performing mid-to-large PSBs, here is a comparison of their key financial health indicators.

The table below uses key metrics from their recent quarterly results (Q2 FY26 or latest reported period) for Canara Bank, Indian Bank, and Bank of India (BOI).

PSB Financial Health Comparison (Latest Quarterly Data)

Key Takeaways from the Comparison

1. Asset Quality (The Biggest Driver)

The Net NPA ratio is the most critical measure of a bank’s health, as it shows the level of bad loans after accounting for the money the bank has set aside (provisions).

• Winner: Indian Bank (Very marginally better than Canara Bank).
  • Indian Bank and Canara Bank lead the pack with exceptionally low Net NPAs near 0.54%. This is a historic low for PSBs and rivals some top-tier private banks. It means their balance sheets are extremely clean, which drastically reduces the risk for future profitability.
  • Bank of India is also showing strong improvement, but its Net NPA ratio is still notably higher than the other two.

2. Profitability (Return on Assets – ROA)

ROA measures how efficiently a bank uses its assets to generate profit. Higher is better.

• Winner: Canara Bank (1.12%)
  • Canara Bank is the most profitable among this group in terms of ROA, indicating superior operational efficiency and better utilization of its loan book.
  • An ROA of 1% or higher is often seen as a benchmark for good performance in the Indian banking sector.

3. Safety/Buffer (Provision Coverage Ratio – PCR)

PCR shows the percentage of bad loans that the bank has provided for. A higher PCR means a greater safety buffer against potential future losses.

• Winner: Canara Bank (93.59%)
  • Canara Bank’s very high PCR, approaching 94%, offers a massive cushion, making its earnings outlook more stable and reliable.

Conclusion: The Superb Performer

While all three banks are part of the sector rally, Canara Bank has the strongest fundamental case based on the latest quarterly numbers.

• It has the best Profitability (ROA) and the highest Safety Buffer (PCR), combined with an industry-leading Asset Quality (low Net NPA).

The market has been rewarding these clear signs of fundamental turnaround, leading to their outperformance.

PERFORMANCE OF PSB  SHARES IN THE MARKET : 

 The Superb Performers (The Leaders of the Rally)

While the entire sector has done well, the best returns have typically come from the mid-sized and some large PSBs who have shown the maximum financial turnaround.

The key takeaway is that the rally is broad-based, affecting almost all major PSBs, not just one isolated stock. The market is rewarding the entire group for their collective and consistent improvement in financial health over the past few years.

Here are the key factors contributing to the surge:

1.  Improving Bank Fundamentals

• Strong Financial Results: Many PSBs have been reporting strong quarterly earnings, showcasing improved profitability.
• Better Asset Quality: There has been a steady and significant decline in Non-Performing Assets (NPAs), meaning the banks’ balance sheets are much healthier than in the past.
• Credit Growth and Margin Improvement: Larger PSBs are well-positioned to benefit from a pick-up in credit growth, especially in the retail segment. There are also expectations of their Net Interest Margins (NIMs) bottoming out, leading to better profitability.
• Attractive Valuations: Even after the recent gains, some analysts consider PSU bank stocks to be reasonably valued compared to their private sector counterparts, suggesting a potential for further “re-rating” of their valuations.

2.  Foreign Institutional Investor (FII) Interest & Policy Buzz

• Anticipation of FII Limit Hike: A major catalyst is the speculation that the government may raise the Foreign Institutional Investment (FII) limit in PSBs from the current 20% to 49%.
  • This potential policy change could unlock billions of dollars in passive inflows, particularly through global indices like MSCI, which would be a massive boost for the sector.
• Increased FII Holdings: Foreign Institutional Investors have already been quietly increasing their stakes in several major PSBs in recent quarters, signaling growing confidence in the sector’s outlook.
• Growing Global Interest: Recent large-scale foreign investments and acquisitions in the broader Indian banking space have also highlighted the rising international appetite for the sector.

3. Technical Momentum

• Bullish Chart Patterns: The Nifty PSU Bank index has shown strong technical momentum, with the sector hitting new highs and exhibiting constructive price patterns, which attracts momentum-driven traders and investors.

In short, the narrative around PSBs has shifted from being burdened by bad loans to being fundamentally stronger, attractively valued, and benefiting from significant potential policy tailwinds.

Based on recent performance and hitting new 52-week highs, several PSBs have stood out:

Disclaimer: Past performance is not an indicator of future returns. The PSB rally has been very sharp, and these stocks are now considered by many analysts to be fairly valued or even overvalued. Investing at current levels requires careful analysis

This article is for informational purposes only. It summarizes updates from publicly available sources and AI-generated insights. We are not SEBI-registered investment advisors, and this content does not constitute investment advice

Nifty PSU Bank Index overview – https://www.nseindia.com/indices

RBI Financial Stability Report – https://www.rbi.org.in

Canara Bank investor relations – https://canarabank.com

Indian Bank investor relations – https://indianbank.in

Bank of India investor relations – https://bankofindia.co.in

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