Home / Business and Economy / PSU Banks: Recovery Priced In?
PSU Banks: Recovery Priced In?
24 Jun
Summary
- PSU banks trade at modest valuations despite sharp NPA reduction.
- Punjab National Bank fights reputation discount; Canara Bank shows strong fundamentals.
- Bank of Baroda faces valuation gap despite strong operating metrics.
Five years ago, public sector banks (PSUs) were largely overlooked by investors due to rampant bad loans. Today, the sector presents a starkly different picture with significantly reduced NPAs and rebounding profitability. Punjab National Bank, Canara Bank, and Bank of Baroda, once heavily impacted by the crisis, have undergone substantial improvements.
These banks have drastically cut down on bad loans and are reporting profits unimaginable during the peak crisis years. For instance, PNB's Gross NPA ratio fell from 18.38% in FY18 to 2.95% in FY26, with a consolidated net profit of ₹18,460 crore. Canara Bank achieved a net profit of ₹19,783 crore in FY26, and Bank of Baroda reported ₹20,058 crore.
Despite these strong fundamentals, PSU banks, including these three, continue to trade at lower valuations, often around one times book value or less, compared to premium private-sector peers. This disconnect is attributed to persistent investor caution regarding government ownership, growth prospects, and the long-term sustainability of their recovery.
The market's continued doubt means the recovery story, while complete on balance sheets, may remain unfinished in PSU bank valuations. Investors are now questioning if these banks can permanently convince the market of their turnaround.
