The banking sector stocks have gained increased attention with the BSE Bankex index closing at 67,183.9 on Wednesday, trading very close to its lifetime high of 67,379.3.
Two smaller PSU banks, Indian Overseas Bank and Bank of Maharashtra declared their results earlier this week. Investors are closely monitoring various operational parameters from these banks, in a bid to understand the ‘big-picture’ for the broader banking system results.
This comes at a time when the RBI has taken various steps to lower the cost of loans in the broader banking system, including the recent repo rate cut in early December 2025.
Navigating the Margin Squeeze: The Retail Strategy
For a key operational parameter, net interest margin (NIM) for Chennai-based Indian Overseas Bank (IOB) was 3.32% in the December 2025 quarter and broadly flat on a y-o-y basis.
For Pune-based Bank of Maharashtra, its NIM was 3.88% in Q3FY26 vis-a-vis 3.98% a year earlier.
The RBI had cut repo rates in early December 2025, as part of several steps taken by the central bank to reduce lending rates in the broader banking system, and it had created temporary pressure on NIMs of banks.
Loan Book Performance: IOB vs. Bank of Maharashtra
With regard to another important operational parameter – growth in advances, for IOB, its advances grew 18.8% y-o-y to Rs 2.91 lakh crore in Q3FY26. The above growth in advances was thanks to a 43% y-o-y growth in its retail advances and 34% y-o-y growth in its agriculture loans in Q3FY26.
Meanwhile, Bank of Maharashtra’s advances were Rs 2.69 lakh crore in the December 2025 quarter, a growth of nearly 20%. The Pune-based bank benefited from its retail advances that grew 36.4% y-o-y in Q3FY26.
Retail loans like car and gold loans typically enable banks to earn a higher rate of loans vis-a-vis loans to top rated corporate clients and enable banks to better manage the pressure on NIMs.
Asset Quality and Provisioning Trends
Asset quality of IOB was also fairly good – its % of Net NPA was 0.24% in the December 2025 quarter vis-a-vis 0.42% a year earlier.
For Bank of Maharashtra too, its asset quality was good – its % of net NPAs was 0.15% in the December 2025 quarter vis-a-vis 0.2% a year earlier.
Meanwhile, a 23% y-o-y drop in the Chennai-based bank’s provisions for non-performing assets to Rs 307.7 crore in the December 2025 quarter, helped its standalone net profit rise 56.4 % y-o-y to Rs 1365.1 crore in the quarter under review.
In contrast, for Pune-based Bank of Maharashtra its provisions for non-performing assets were Rs 660 crore in the December 2025 quarter vis-a-vis Rs 593.2 crore a year earlier. However, a strong growth in its loan book helped the Pune-based bank’s standalone net profit rise 26.5% y-o-y to Rs 1,779.3 crore in the December 2025 quarter.
The two banks’ core banking operations are reflected in its standalone results.
Efficiency kings – Return on Assets (RoA)
For IOB, its RoA (annualised) was 1.28% in the December 2025 quarter.
For Bank of Maharashtra, its RoA (annualised) was 1.86% in the December 2025 quarter.
Growth strategy
Investors will be closely monitoring Indian Overseas Bank and Bank of Maharashtra and other leading banks for their ability to grow their loan books, manage NIMs and other operational parameters over the next few quarters.
And with competition expected to get stronger in the banking system over the next few quarters, with several overseas banks buying a sizeable stake in mid-sized private sector banks and NBFCs, investors will also be monitoring how smaller PSU banks deal with this emerging competition.
Valuation Gap: The Case for Smaller PSU Banks
Media reports indicate that IOB has got approvals for raising Rs 4,000 crore through a QIP and this will help to bring down the central government’s stake which was 92.4% at the end of the third quarter of FY26.
IOB’s quarterly results were declared during Wednesday’s trade and the stock rose 1.8% to Rs 36.1. The stock is hovering just above its 52-week low of Rs 33 that was reached on 7 April 2025, and Dalal Street is awaiting details of its forthcoming QIP, and the pricing.
The central government had also sold 2% stake in this Chennai-based bank in late December 2025, and it has led to a sluggish trend in its stock price.
Bank of Maharashtra declared its results on Tuesday, and on Wednesday, the stock rose 1.3% to Rs 65.9. The stock had reached its 52-week high of Rs 67.8 during Wednesday trade.
IOB trades at a standalone P/E of 14.6, according to Screener.in, while Bank of Maharashtra trades at 7.8 times.
SBI, the largest PSU bank, trades at a standalone P/E of 13.3 times, according to Screener.in.
Coming to the price to book value, a preferred metric for valuing banks…
Indian Overseas Bank trades at a price to (standalone) book value of 1.9 times, according to Screener.in.
Over the past 5 years, it has traded at price to (standalone) book value between 1.1 and 5.2 times. The stock is trading closer to lower levels on the above valuation metrics.
Bank of Maharashtra trades at price to (standalone) book value of 1.5 times.
Over the past 5 years, it has traded at price to (standalone) book value between 0.7 and 2.9 times. It is trading close to the mid-level of the above valuation metric.
SBI, trades at 1.8 times price to (standalone) book value, and over the past 5 years it has traded between 1 and 2.3 times
Investors could add Indian Overseas Bank and Bank of Maharashtra to their watch list of stocks for 2026, given the growth expected for these two smaller PSU banks.
Disclaimer:
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
The writer and his family have no shareholding in any of the stocks mentioned in the article.
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