3 Undervalued PSU Banking Stocks to Watch

Next on our list is the stock of Canara Bank.

Canara Bank is one of India's largest and oldest public sector banks. Established in 1906, it has grown from a regional initiative into a global financial institution with a presence in London, New York, Dubai, and Hong Kong.

Canara Bank has a strong ROE of 16.6%. The bank also gives a good dividend yield, with a reasonable price to book value of 1.2 times.

The bank has been performing exceptionally well over the last few quarters. The trend continued in Q3 FY26.

Operating profits stood at 91,190 m and increased on a year-on-year basis at 16.36%. The net profit stood at Rs 51,550 m and grew at 25.61% on a YoY basis.

The return on assets improved by 9 basis points year-on-year basis and stood at 1.13%. The credit cost for Canara Bank was at 0.64% and improved by 25 basis points YoY.

The asset quality also saw a good improvement. The GNPA declined by a solid 126 basis points year-on-year and stood at 2.08%. The net NPA stood at 0.45% and declined by 44 basis points year-on-year basis.

Now coming to the guidance parameters, in the beginning of the financial year, the management had given guidance numbers for 13 parameters, and the bank has comfortably surpassed 11 parameters, except CASA and NIM, which is industry challenge.

Overall, the bank's fundamentals and improving metrics suggest growth ahead in the coming quarters, but it remains sensitive to macroeconomic conditions and sector wide trends.

#3 Union Bank

Union Bank of India is one of India's large government-owned banks. The bank has expanded significantly after merging with Andhra Bank and Corporation Bank in 2020.

Union Bank of India offers retail, corporate, MSME, and digital banking services across a wide network of branches in India, along with select international operations.

Union Bank of India has a strong ROE of 15.8%, with a reasonable book value of 1.2 times when compared to peers.

Coming to the financial performance for FY26, advances increased by 7.13%, and the total deposit grew by 3.36%. The CASA increased by a solid 140 basis point quarter-on-quarter, which was a big positive.

Net profits at the bank surged to Rs 50,228 m vs Rs 45,972 m YoY.

Moving ahead, broad banking sector trends in India remain strong with resilient asset quality and low bad loans, creating a supportive environment for growth.

Union Bank is positioned for steady growth, driven by expanding retail and regional business, stronger capital and asset quality, and continuing digital innovation in India's robust banking landscape.

Should You Consider PSU Banking Stocks?

PSU banking stocks are revealing better metrics, thanks to a strong balance-sheet clean-up seen over the past few years.

Public sector lenders have reported lower bad loans, better capital ratios and steady credit growth across retail, MSME, and infrastructure segments.

In addition, government backing provides a layer of stability during economic stress.

However, PSU banks tend to be more cyclical and can face pressure if interest rates are volatile or if economic growth slows.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...