For years, PSU bank stocks were the ones investors avoided at parties. Bad loans, government interference, weak returns – the story was well known, and painfully repetitive.
That story has flipped. Since 2020, most PSU banks have cleaned up their books, raised capital, and started posting profits that even private banks would envy in some quarters.
Several PSU banks have re-rated sharply on the stock market, moving from being priced below book value to trading at a premium to it.
The turnaround isn’t just a narrative – it shows up in the numbers.
Let us take a look at four PSU bank stocks that could be worth adding to your watchlist.
Here, we have considered PSU bank stocks with Return on Equity (ROE) of more than 12%, a price-to-book (PB) ratio below 1.5 times, gross NPA below 3% and net NPA below 1%.
#1 Union Bank of India
First on the list is Union Bank of India.
Union Bank of India is one of India’s leading public sector banks with a strong pan-India presence and a diversified loan book across retail, agriculture, MSME, and corporate segments.
The bank delivered a healthy operational performance in Q1FY27, supported by steady growth in advances, improving asset quality, and stable profitability.
During Q1FY27, Union Bank’s global advances grew 12.5% YoY to Rs 10.96 trillion (tn), while global deposits increased 3.5% YoY to Rs 12.83 tn. RAM (Retail, Agriculture, and MSME) advances grew 11.56% YoY to Rs 6.08 tn, forming 57% of domestic advances.
The bank also reported its highest ever quarterly net interest income of Rs 100.37 billion (bn), while quarterly net profit stood at Rs 53.32 bn, up 29.57% YoY.
Asset quality remained robust. Gross NPA ratio improved to 2.65% from 3.52% in the year-ago quarter, while Net NPA ratio declined to 0.47%, with a healthy provision coverage ratio of 95.05%.
Union Bank reported Return on Equity (ROE) of 17.23%, with book value per share at Rs 162.15. Capital adequacy ratio (CRAR) stood at 18.46%, with CET-1 at 16.38%, giving it adequate headroom for future credit growth.
| Stock Price-to-Book Value (x) | 1.00 |
| Industry Price-to-Book Value (x) | 0.98 |
| Stock Book Value (Rs) | 163.58 |
| Dividend Yield (%) | 3.05 |
| Return on Equity (%) | 16.22 |
| Return on Assets (%) | 1.21 |
| Net Interest Margin (%) | 2.49 |
Source: ACE Equity (FY26)
Management has guided for credit growth in line with the industry plus about 1%, backed by a sanctioned but undisbursed corporate pipeline of over Rs 1 tn.
On deposits, the focus remains on building CASA and retail term deposits over bulk deposits, a shift expected to keep funding costs in check.
NIM, which improved to 2.80% in Q1FY27, is expected to improve further, aided by a shift toward higher-yielding domestic advances.
The bank is also preparing for the transition to Expected Credit Loss (ECL)-based provisioning, with an estimated one-time requirement of around Rs 113 bn, against which it has set aside Rs 80 bn.
For more details, see the Union Bank of India company fact sheet and quarterly results.
#2 Punjab National Bank
Next on the list is Punjab National Bank.
Punjab National Bank is one of India’s leading public sector banks with a strong pan-India presence and a diversified loan book across retail, agriculture, MSME, and corporate segments.
During Q1FY27, PNB’s global business grew 10.2% YoY to Rs 29.98 tn, with global advances up 12.7% YoY to Rs 12.73 tn and global deposits rising 8.5% YoY to Rs 17.25 tn.
RAM (Retail, Agriculture, and MSME) advances grew 12.8% YoY to Rs 6.88 tn, forming 57.2% of domestic advances.
Within RAM, MSME advances grew the fastest at 19.8% YoY to Rs 2.03 tn, while retail advances (excluding IBPC) rose 17.5% YoY to Rs 2.57 tn, led by strong growth in vehicle loans at 34.4% YoY.
The bank’s net profit surged to Rs 52.53 bn, up a sharp 213.6% YoY, aided by a high base effect from elevated tax provisions in the year-ago quarter. Operating profit grew 6.2% YoY to Rs 75.19 bn, while net interest income came in at Rs 107.98 bn, its highest ever quarterly level.
Asset quality continued to strengthen. Gross NPA ratio improved to 2.78% from 3.78% a year ago, while Net NPA ratio declined to 0.28% from 0.60%, with provision coverage ratio (including technical write-offs) at a healthy 97.23%.
PNB reported Return on Assets (RoA) of 1.04% and Return on Equity of 17.33% (tangible) for the quarter, while book value per share (tangible) rose to Rs 108.58, up 17.2% YoY. Capital adequacy ratio (CRAR) stood at a comfortable 18.13%, with CET-1 at 14.52%.
| Stock Price-to-Book Value (x) | 0.83 |
| Industry Price-to-Book Value (x) | 0.98 |
| Stock Book Value (Rs) | 121.47 |
| Dividend Yield (%) | 2.98 |
| Return on Equity (%) | 12.93 |
| Return on Assets (%) | 0.88 |
| Net Interest Margin (%) | 2.22 |
Source: ACE Equity (FY26)
Management has laid out clear guidance for FY27, targeting credit growth of 12-13% and deposit growth of 9-10%, alongside a CASA share target of 38%, up from the current 36.7%.
On margins, the bank is targeting NIM in the range of 2.6-2.7%, compared to 2.5% in Q1FY27, as the funding mix shifts further toward low-cost deposits.
On asset quality, PNB has guided for Gross NPA below 2.5% and Net NPA below 0.3% by the end of FY27, alongside credit cost staying below 0.4% and total recovery of over Rs 130 bn for the year.
For more details, see the PNB company fact sheet and quarterly results.
#3 Bank of Baroda
Next on the list is Bank of Baroda.
Bank of Baroda ranks among India’s top public sector lenders, with deep nationwide reach and a balanced credit mix spanning retail, agriculture, MSME, and corporate loans, complemented by a significant international book.
The bank turned in a strong quarter in Q1FY27, with robust advances growth, improving asset quality, and steady profitability though reported net profit took a hit from a one-off legal settlement.
Global business crossed Rs 30.5 tn in Q1FY27, up 15.4% YoY, as global advances rose 17.4% YoY, with domestic advances growing 16.1% and the international book outpacing at 23.3%.
Organic retail advances climbed 18.4% YoY and agriculture rose 18.7%, while organic MSME was the standout performer, growing 20.3% YoY. Within retail, auto loans led the way at 25.3% YoY growth, followed by mortgages at 27.4%, even as corporate loans grew a healthy 15.3%.
Operating profit for the quarter came in at Rs 81.27 bn, but net profit fell sharply to Rs 12.78 bn after the bank absorbed a US$ 600 m out-of-court settlement tied to a legacy NMC-related litigation stripping out this exceptional item, net profit would have stood at Rs 55.28 bn.
On the asset quality front, the numbers held firm: Gross NPA improved to 1.99%, an improvement of 29 bps YoY, while Net NPA eased to 0.5%, with a comfortable provision coverage ratio of 93.28%.
| Stock Price-to-Book Value (x) | 0.77 |
| Industry Price-to-Book Value (x) | 0.98 |
| Stock Book Value (Rs) | 320.74 |
| Dividend Yield (%) | 3.44 |
| Return on Equity (%) | 12.47 |
| Return on Assets (%) | 0.98 |
| Net Interest Margin (%) | 2.57 |
Source: ACE Equity (FY26)
Looking ahead, management has retained its guidance of 12-14% credit growth and 10-12% deposit growth, citing continued momentum across retail, agriculture, and MSME.
On the deposit side, the bank is leaning on FCNR(B) and NRI deposit mobilisation to cut its reliance on bulk deposits, a move expected to ease funding costs over time.
NIM stood at 2.77% for the quarter and is expected to hold within the guided 2.75-2.95% band, helped by the repricing of non-MCLR corporate exposures.
The bank is also gearing up for the shift to Expected Credit Loss (ECL)-based provisioning, pegging the one-time impact at around Rs 125 bn, of which Rs 25 bn is already set aside as floating provision.
For more details, see the Bank of Baroda company fact sheet and quarterly results.
#4 Canara Bank
Next on the list is Canara Bank.
Canara Bank has long operated at scale, with a nationwide network of over 10,000 branches supporting a diversified loan book across retail, agriculture, MSME, and corporate lending.
Q1FY27 stood out for how consistently the bank cleared its own guidance, from advances growth to asset quality, even as net profit growth told a more subdued story.
Global business climbed 14.37% YoY to Rs 29.05 tn. Advances did the heavy lifting, up 17.97% YoY at Rs 12.93 tn, while deposits grew at a slower 11.63% YoY to Rs 16.12 tn.
RAM advances grew 21.2% YoY to Rs 7.65 tn, and retail was clearly the driver, jumping 35.88% YoY to Rs 3.2 tn on strong vehicle loan demand (up 26.34%) and steady traction in housing loans (up 17.85%). MSME advances added 15.12% YoY, taking the book to Rs 1.69 tn.
Net interest income crossed Rs 100 bn for the first time, coming in at Rs 102.15 bn for the quarter, up 13.39% YoY. Net profit, though, grew a fairly modest 2.19% YoY to Rs 48.56 bn.
Part of the reason was treasury income coming in weaker this time around, down close to Rs 10 bn YoY since last year’s gains from falling yields simply aren’t repeating.
Asset quality was where the quarter really stood out. Gross NPA improved 112 bps YoY to 1.57%, Net NPA came down 27 bps to 0.36%, and the provision coverage ratio moved up to 94.76%.
Return on Equity landed at 18.07%, comfortably ahead of the 16.5% the bank had guided for, while Return on Assets was at 1.04%. Capital ratios held up well too, CRAR at 17.17% and CET-1 at 12.91%, both better than a year ago.
| Stock Price-to-Book Value (x) | 1.01 |
| Industry Price-to-Book Value (x) | 0.98 |
| Stock Book Value (Rs) | 122.68 |
| Dividend Yield (%) | 3.40 |
| Return on Equity (%) | 18.03 |
| Return on Assets (%) | 1.05 |
| Net Interest Margin (%) | 2.03 |
Source: ACE Equity (FY26)
For the coming quarters, management is guiding NIM to stay in the 2.5-2.6% range, roughly where it sits today at 2.52%, with a clear plan to push it higher by leaning less on bulk deposits and more on retail term deposits, savings balances, and NRI money through FCNR(B), ECB, and OFCB routes.
On that last bucket alone, the bank is targeting US$ 2.3-2.5 bn for the year and had already crossed US$ 775 m within the first month itself.
CASA, at 29.7%, is still on the lower side compared to peers, and management has openly flagged it as something they want to fix.
On the ECL front, the bank expects an incremental provisioning hit of about Rs 100-130 bn, roughly 1.2% of risk-weighted assets, and plans to spread this over two years instead of the five allowed, backed by a capital position it says is strong enough to absorb the hit without raising fresh equity.
For more details, see the Canara Bank company fact sheet and quarterly results.
Conclusion
The four PSU banks discussed above show how far the sector has come, with steady advances growth, improving asset quality, and stronger capital positions now the norm.
Union Bank and PNB delivered strong, well-rounded quarters, Bank of Baroda’s core operations stayed robust despite a one-off settlement hit, and Canara Bank consistently beat its own guidance, though margins and CASA remain areas to watch.
That said, near-term challenges remain. The ECL transition will require meaningful one-time provisioning, and reducing reliance on bulk deposits in favour of CASA and retail deposits will be key to protecting margins ahead.
Investors should track execution over the coming quarters, loan growth quality, deposit mix, and the NIM trends. Also, the ECL transition will determine which of these banks convert this strength into sustained earnings.
Happy investing.
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