Systematix bullish on PSBs; BoB, Union Bank may rise up to 30%: Here's why

Systematix noted that PSBs witnessed a remarkable turnaround in FY25, reversing the decade-long decline in their advances market share

Domestic brokerage Systematix Institutional Equities has initiated coverage on five public sector banks (PSBs), including Bank of Baroda, Bank of India, Bank of Maharashtra, and Union Bank of India, with a Buy rating and Indian Bank with a Hold. 

 

The brokerage noted that PSBs witnessed a remarkable turnaround in FY25, reversing the decade-long decline in their advances market share, which had fallen from 74.9 per cent in 2011 to 51.8 per cent in 2024. It highlighted PSBs’ robust liability profile, with household deposits comprising 67.6 per cent of the total, compared to 52.1 per cent for private banks. 

 

According to Systematix, improvements in technology-driven underwriting, better provision coverage ratio (PCR), and tighter Gross Slippage ratios have helped narrow the asset quality gap with private banks. Additionally, recoveries from technically written-off (TWO) accounts have boosted returns on assets (RoA), and lower EBLR loan exposure, along with deposit rate cuts, have helped PSBs manage net interest margins better.

 

 

On September 19, the Nifty PSU Bank index rose around 1.3 per cent in an overall subdued market. The benchmark Nifty50 was trading at 25,309 levels, down by 115 points or 0.45 per cent. Among the Nifty PSU Bank index constituents, Union Bank of India was up by 2 per cent, followed by Bank of Baroda (1.43 per cent), Bank of India (1.12 per cent), Bank of Maharashtra (0.3 per cent) and Indian Bank (0.55 per cent).

 

Systematix has a target price of ₹325 per share for Bank of Baroda, indicating an upside potential of 30 per cent from the stock's closing price on September 18, 2025. For Bank of India, Bank of Maharashtra, Union Bank, and Indian Bank, the targets are ₹150 (26 per cent upside), ₹69 (20 per cent), ₹160 (17 per cent), and ₹765 (9 per cent), respectively.

Here's why Systematix is bullish on public sector banks:

PSBs regain momentum in credit growth

For the first time since March 2010, PSBs recorded 12.2 per cent year-on-year (YoY) growth in advances in FY25, outperforming that of private banks at 9.5 per cent. They are also gaining share in select retail segments and currently enjoy better liquidity positions. Despite US’ tariff impositions having disrupted exports, CRISIL projects 11–12 per cent credit growth for FY26, on the back of RBI's liquidity measures and the central government's initiatives to boost economic growth.

Robust liability profile

PSB's deposit market share declined 56 basis points in FY25, the lowest in the past decade, despite HDFC Bank's aggression to garner deposits. Following the 2021 consolidation, PSBs shifted focus back to growth, with all eight banks accelerating branch additions. The liability profile also remains strong, on the back of a higher share of household deposits at 67.6 per cent against 52.1 per cent for private banks, and healthy contributions from retail and small business deposits.

Improving asset quality

Historically, public sector banks lagged private banks in underwriting standards, but PVBs have had lapses too. Over the past five years, PSBs have improved underwriting through extensive use of technology. This has significantly reduced the non-performing assets (NPA) gap between PSBs and PVBs. PSBs are also keeping gross slippage ratios in control. In the current stable asset quality environment, they have built contingent provisions as aggressively as PVBs.

Fee income for PSBs likely to improve

Furthermore, PSBs have lagged behind PVBs in generating fee income due to limited credit card products, less focus on bancassurance and mutual fund distribution, and a lower share of retail/consumer loans. Recently, PSBs have started developing third-party products as a new fee income source. The banks are also training branch-level staff and providing technological support to equip them to sell such products.

PSBs resilient amid NIM pressure

While the net interest margin (NIM) is declining in the banking system due to RBI's repo rate cuts, PSBs have managed the pressure better than PVBs in Q1FY26. This resilience is supported by a relatively lower share of EBLR loans, low slippages, and a reduction in deposit rates. With deposit repricing and CRR cut benefits from Q2FY26, NIMs are expected to stabilise by Q3FY26 and improve from Q4FY26, assuming there are no further repo cuts.

 

To conclude, the public sector banks are improving on several important operational and structural parameters, said Systematic Institutional Equities. They have significantly enhanced focus on areas where they were lagging, clearly indicating sustained structural growth ahead, the brokerage said.