Top 5 Leading PSU Banks to Keep an Eye on in 2025

Public Sector Undertaking (PSU) banks in India play a significant role in the country's financial system, offering both stability and growth opportunities for investors.

These government-owned banks are crucial in financing large-scale infrastructure projects, supporting the rural economy, and driving national development.

In recent years, several PSU banks have gained attention due to their improving financial performance, strategic reforms, and government backing.

For investors looking to tap into the potential of India's banking sector, here are five PSU banks that offer a mix of safety and potential returns.

#1 Bank of Maharashtra

First on our list is Bank of Maharashtra.

The public sector bank is engaged in retail banking, corporate/wholesale banking, priority sector banking, treasury operations and other banking services.

Shares of the bank have risen more than 18% in the last year, driven by strong growth in recent quarters, driven by traction in credit growth in corporate and RAM segment.

The bank's net profit has grown at a CAGR (compounded annual growth rate) of 23% in the last five years. This growth has resulted in a return on equity (RoE) of 22.8% in March 2024.

What stands out about the bank is that its net non-performing assets (NPAs) are the lowest among both private and public banks.

The bank's net NPAs stood at 0.2% of total advances. Gross NPAs stood at 1.85% as against 1.88% as on 31 March 2024.

The bank has improved its asset quality drastically, with the NPAs going from 0.97% in FY22 to 0.2% in FY24 while maintaining a healthy net interest margin (NIM) of 3.9%.

It also recently raised Rs 35 bn via QIP route. In April 2024, the board approved raising Rs 75 bn for FY25, with shareholders approving fundraising options in June, including QIP.

Going forward, Bank of Maharashtra is focused on acquiring new customers and deepening relationships. It has introduced special deposit schemes to retain customers and is also exploring government relationships for deposit growth.

The bank also plans to make continued investments in digital initiatives, AI-based customer service, and straight-through processing journeys to enhance customer experience and operational efficiency. It is upgrading its mobile banking app to provide lifestyle banking solutions.

Apart from this, it is partnering with high-rated NBFCs for co-lending portfolios.

For more details, see the Bank of Maharashtra fact sheet and quarterly results.

#2 Bank of Baroda

Second, on our list is Bank of Baroda.

The bank is the third largest Indian PSU bank by market capitalisation.

It offers a wide range of banking services, including personal, corporate, international, rural, small and medium enterprises (SME), non-resident Indian (NRI) services, and treasury services.

The bank's net profit has grown at a 5-year CAGR of 77% driven by controlling operating costs and maintaining net interest margin. Tracking this, the company's RoE has also grown to 18.95%.

Its asset quality is also healthy. For the June 2024 quarter, the bank's net NPAs stood low at 0.69% of the total advances while gross NPAs came in lower at 2.88% against 2.92% in the June 2024 quarter.

Going forward, the management remains optimistic about future growth, focusing on asset quality and profitability while navigating market challenges.

The bank is strategically managing deposits and advances to maintain margins and is prepared to capitalize on growth opportunities in retail and corporate segments.

It plans to introduce new retail products to enhance its deposit growth, optimise costs through digital transformation, and utilise technology to grow its advances and loan book.

It is aiming for 10-12% deposit growth and 12-14% advance growth in the upcoming quarters. It also has a strong pipeline for corporate loans, with an expected growth of 10%-12% in that segment.

For more details, see the Bank of Baroda fact sheet and quarterly results.

#3 State Bank of India

Third on our list is State Bank of India, India's largest PSU bank by assets and by market capitalisation.

Despite the bank's troubled background, the bank's financial situation has improved over the years.

Its net profit has doubled over the last five years. This has propelled the lender's RoE to 20.3% in the financial year 2024.

The bank's asset quality has also kept up with that of the other PSU banks.

For the June 2024 quarter, the bank's net NPA's stood at 0.57% of total advances. Its gross non-performing assets (NPA) ratio also improved to 2.21% as against 2.24% led by lower slippages.

Going forward, the management remains optimistic about maintaining NIMs and overall profitability despite macroeconomic pressures.

It is confident of growth going forward led by the government's capital outlay plans and an uptick in the credit demand across the country.

Moreover, it is confident in generating sufficient capital organically to fund the growing business.

The bank is also focussing on enhancing liability franchise and deposit mobilization through various initiatives.

It is opening approximately 60,000 savings bank accounts daily, with significant contributions from digital channels and enhancing deposit interest rates selectively to maintain franchise value and attract deposits.

For more details, see the SBI fact sheet and quarterly results.

#4 Canara Bank

Fourth on our list is Canara Bank.

The bank was incorporated in 1906 and nationalised in 1969, along with 13 other major commercial banks of India, by the Government of India.

Canara banks financial performance has not been the most steady in the past. However, the bank has turned it around since 2021.

Over the last three years, the bank's net profit has grown at a CAGR of 75% taking its RoE from 4.6% in 2021 to 16.6% in the year 2024.

Its asset quality is also not far behind. The bank's net NPAs stand at 1.24% while its gross NPAs stand at 4.14% as of June 2024, a vast improvement from 1.57% and 5.15% in June 2023.

Going forward, the bank's management is confident in achieving its full-year guidance. It is focus on maintaining consistency in performance across all business parameters.

The bank is actively focusing on improving its NIM. To do so the management is working on reducing costs while maintaining its asset quality.

It is also looking to improve its CASA ratio. It plans The bank's share of CASA deposits stood at 30.98% during the quarter which is low compared to most PSBs. It has been taking various measures to improve its CASA ratio and has guided for an improvement in the CASA ratio to 33% for FY25.

The management expects to deliver 11-12% loan growth in the current financial year.

For more details, see the Canara Bank fact sheet and quarterly results.

#5 UCO Bank

Last on our list is UCO Bank.

The lender offers a host of value-added banking solutions to its customers including international banking services, services for NRIs loan schemes, deposit schemes, and value-added e-banking solutions.

The bank's financials were weak until 2021 bogged down its weak asset quality and earnings. The Government of India supported UCO Bank with infusion of Rs 226 bn over fiscals 2016-2022. Of this, Rs 26 bn was infused in fiscal 2021.

Post the infusion, the bank's financial profile improved.

Over the last three years, the bank's net profit has grown at a CAGR of 190% on the back of growing net interest income. This has resulted in an improvement in its return ratios as well. The RoE reported by the company stands at 13.1% as of March 2024.

While the bank had reported gross NPAs of 7.89% in March 2022, this has now improved.

The bank's asset quality has exhibited gradual improvement over the past few quarters evidenced in gross NPAs improving to 3.32% in June 2024 from 4.78% a year earlier, supported by lower slippages and growth in loan book.

Net NPAs have also declined substantially to 0.78% from 1.29% over the same period.

The management of the bank aims to continue working on operational efficiency to improve its return ratios.

It is also focussing on improving CASA for low-cost deposits and monitoring pricing closely to protect net interest margins. Besides this, it is working towards building a strong loan portfolio and managing credit costs.

For more details, see the UCO Bank fact sheet and quarterly results

Snapshot Of PSU Bank Stocks from Equitymaster's Stock Screener

Here's a quick view at the above-mentioned companies based on some crucial financial parameters.

Please note that these parameters can be changed according to your selection criteria.

Conclusion

In conclusion, public sector undertaking (PSU) banks in India present investors with notable opportunities due to their government backing, widespread network, and significant role in the country's economic development. These banks often benefit from reforms and policies that support their growth.

However, investors should exercise caution. PSU banks may face operational inefficiencies compared to their private sector counterparts. Their performance can also be impacted by shifts in government policy and economic conditions.

For those considering PSU bank stocks, thorough research, careful monitoring of the economic environment, and diversification are essential to managing the risks while maximizing potential returns.

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.