Structural gains, valuation support positive for PSU bank stocks

PSU banks have gained 10% in a month as improved profitability, strong deposit franchises, stable asset quality and reasonable valuations drive investor interest

Public sector banks (PSBs) are attracting the attention of investors and the PSU Bank Index has gained nearly 10 per cent in the past month. PSBs have seen return on assets (RoA) climbing to 1 per cent in the financial year 2025 (FY25) and margins are believed to have moved up further in the first half of this financial year (H1FY26) with asset quality remaining stable.

 

In FY25, PSB sector profitability crossed ₹1.5 trillion and PSBs outpaced private banks in credit expansion. The aggregate earnings per share or EPS for PSBs is expected to grow at mid-teens annually between FY26-28.