The Quiet Bulls of India’s Banking Renaissance.

Once mocked as bureaucratic dinosaurs, PSU banks are now the surprise stars of Dalal Street.

By Sumon Mukhopadhyay

---------------------------------

Once mocked as bureaucratic dinosaurs, PSU banks are back with a roar—posting record profits, shedding NPAs, and still trading at bargain valuations. Here’s why they may be Dalal Street’s quiet bulls in FY26.

---

Record Profits, Trimmed Fat:

Public sector banks (PSBs) have gone from being problem children to profit powerhouses.

🔹Total PSB profit hit ₹1.78 lakh crore, up 26% YoY.

🔹SBI clocked its highest-ever net profit, topping ₹60,000 crore.

🔹Bank of Baroda, Canara Bank, and Union Bank all reported double-digit growth in net interest income and operating profits.

🔹Gross NPAs are now below 4%—a milestone not seen in over a decade.

Figure 1: PSU Banks’ Gross NPA (%) Trend.

Years of provisioning, recoveries under the IBC, and stricter lending standards are finally showing results.

---

Riding the Infrastructure Wave:

The government’s infrastructure drive—roads, railways, and renewables—needs massive credit. And PSU banks, with their rural presence and policy alignment, are best placed to ride this wave.

🔹MSME lending is surging in Tier 2 and Tier 3 cities.

🔹Agri-credit and priority sector lending are expanding ahead of elections.

🔹Digital banking tools are making rural financing faster and cheaper.

---

Valuation Gap: Beauty Vs the Beast:

Despite improved fundamentals, PSU banks still trade at a discount compared to private peers.

🔹SBI trades around 1.3x book, while HDFC Bank commands ~3.2x.

🔹Smaller PSBs like Indian Bank (19.6x m-cap growth), Bank of Maharashtra (8.4x), and UCO Bank (4.3x) have posted multibagger returns but still trade below book values.

Figure 2: Valuation Gap – PSU Banks vs. HDFC Bank.

For value investors, this is like buying branded shoes at street-market prices.

---

Disinvestment Buzz:

Add some spice: disinvestment stories are swirling.

🔹IDBI Bank is already in advanced stake-sale talks.
🔹UCO Bank and Bank of Maharashtra are rumored to be next.

When “sarkari” turns “strategic,” volumes and valuations spike.

---

Dividend Bonanza;

PSU banks are no longer just growth bets—they’re income plays too.

🔹SBI now offers dividend yields of 2.5%+, better than many FMCG giants.

🔹LIC, mutual funds, and FIIs have all increased their holdings in PSU banks in the last two quarters.

For investors, these banks are handing out both cash and compounding.

---

Conclusion: Don’t Laugh, Just Bank On It:

Ignore the old jokes about babu culture and inefficiency. PSU banks are now profitable, undervalued, and aligned with India’s growth story.

For investors seeking stealth compounders in FY26, PSU banks look like the quiet bulls ready to charge.