Come across any discussion on Indian banking today, and you’ll likely hear the oft-repeated names, State Bank of India, HDFC Bank, or ICICI Bank. These banks are leading every benchmark and business news headline today.
But in the backdrop, a few smaller names have been silently working on their balance sheets, increasing margins, and earning investor trust without the pomp.
With the Indian credit cycle staying strong and retail lending driving new business, these mid-tier participants are evolving from years of reform. They may not have the marketing muscle or analyst exposure of the top banks, but the numbers speak for themselves.
Three such banks, Indian Bank, Union Bank of India, and Federal Bank, have shown solid advancements in key ratios like return on equity (ROE), net interest income (NII), and gross non-performing assets (GNPA) over the last three years. Together, they tell a story of quiet strength in India’s financial sector.
India’s banking tide lifts all boats
The past few years have seen the Indian banking system go through a transformation. Non-performing assets have dropped to their lowest levels in ten years, the demand for credit has rebounded after the pandemic, and digital adoption has made traditional banks trimmer.
But the biggest surprise of FY25 was this: The Indian Brand Equity Foundation (IBEF) found public sector banks outdid private lenders in loan growth for the first time in 14 years. This shift has brought fresh attention to once-unnoticed names.
A blend of public and private banks with improving fundamentals could likely become the dark horses of the next banking rally.
We focused on mid-cap banks with strong three-year fundamental improvement, especially rising return on equity (ROE), net interest margin (NIM), steady or improving asset quality, and solid loan and deposit growth.
Indian Bank’s steady rise
If you were to pick one public sector bank (PSB) that has silently but increasingly improved its financial performance, then Indian Bank could probably top the list.
Three years ago, it was a modest-sized public sector bank with a regional focus. Today, it has consolidated its processes and balance sheet, proving that even conventional PSBs can change and grow systematically.
Indian Bank’s net profit grew ~11% YoY to ₹3,109 crore excluding exceptional items, because of high interest income and regulated operating expenses.
Per the investor presentation (October 2025), its gross NPA declined steadily to 2.60%, indicating tighter credit screening and better recovery procedures. The return on equity improved because of higher asset utilization and steady operating margins.
Key Financial Snapshot (FY26)
| Bank Name | Q2 ROE (%) | NIM (%) | Gross NPA (%) | CASA (%) | P/E (x) |
| Indian Bank | 19.58% | 3.34% | 2.60% | 38.87% | 9.79x |
Over FY23–FY26, the Net Interest Income (NII) grew consistently, showing expansion in deposits and better yield management. The bank’s Q2 FY26 CASA ratio grew by ~7.23% reinforcing its profile.
Indian Bank’s P/E ratio of ~9.79x is slightly higher than the PSU bank median P/E of 8.02x. It is, however, lower compared to SBI with a P/E of 10.93x and Indian Overseas Bank with a P/E of 18.13x.
For a long time, such legacy banks were considered slow-moving and full of red tape. But Indian Bank’s story disputes that view. Today, it is a leaner, digitally aware organization, gaining from improved deposit quality and compelling credit discipline.
No growth story can be without its challenges. Salary revisions, the need to sustain asset quality amid growing credit demand are constant worries.
Yet, Indian Bank’s steady improvement has made it a quiet outperformer among PSBs, still under-owned by foreign large institutional investors.
Union Bank of India’s silent revival
The Union Bank of India has been changing over the last few years. From a local bank to a stronger and operationally capable lender, the bank has gradually improved profitability while controlling risk effectively.
The Union Bank’s net profit grew ~22% YoY to ₹4,428 crore excluding exceptional items.
Its gross NPA improved 102bps YoY to ~3.52% in Q1FY26, showing better credit monitoring and recovery efforts. The average ROE of 15% over the past three years reflects the bank’s disciplined cost management and improved operational efficiency.
Key Financial Snapshot (FY26)
| Bank Name | Q1 ROE (%) | NIM (%) | Gross NPA (%) | CASA (%) | P/E (x) |
| Union Bank of India | 15.15% | 2.76% | 3.52% | 32.52% | 5.87x |
The growth in net interest margin supports steady growth in revenue. The CASA ratio remains healthy, providing low-cost funding. The P/E ratio of ~5.87x is lower than the PSU Banks median of 8.05x, which makes it a stock from the PSU universe that one should track.
Unlike some private banks, UBI brings quiet, steady performance. Its broad branch network, even deposit base, and gradual digital banking adoption make it a PSU that is turning heads for the best reasons.
With progress, obstacles aren’t far behind. Managing costs and keeping loan quality are challenging. The bank’s systematic U-turn has made it one of the more underestimated PSBs.
Federal Bank’s steady stance
Federal Bank, over the last three years, has gradually reduced its gross and net NPAs, expanded its coverage ratio, while maintaining two-fold profit growth.
The bank’s net profit fell 10% YoY to ~ ₹955 crore as per its latest investor presentation.
Its gross NPA further improved 26 bps YoY to ~1.83% in Q2 FY26, indicating superior credit checking and recovery efforts. The ROE climbed to ~11.01% in Q2FY26, driven by systematic cost management and improved operating efficacy.
Key Financial Snapshot (FY26)
| Bank Name | Q2 ROE (%) | NIM (%) | Gross NPA (%) | CASA Ratio (%) | P/E (x) |
| Federal Bank | 11.01% | 3.06% | 1.83% | 31% | 14.66x |
The bank’s operating profit rose to ₹1,644 crore despite higher provisions. Its P/E at 14.66x is slightly higher than the private banks’ median of 13.41x. However, compared to IDFC First Bank’s P/E of 44.56x and Kotak Mahindra Bank’s 22.83x, it is potentially a hidden gem.
Federal’s strength lies in its steady deposit franchise and its shift toward more digital onboarding and cross-selling of products.
It’s also expanded partnerships with FinTech businesses to bridge the gap between old-school banking and new-age finance.
For investors, Federal Bank offers a conservative growth option, one that is relatively less volatile yet still offers growth due to increased margins and capital efficacy.
While it’s more noticeable than the other two names, it continues to be eclipsed by giants like Axis and HDFC Bank.
Why these three matter now
These three banks, though different in structure, exhibit the same theme: balance sheet overhaul, margin improvement, and silent growth.
These numbers tell a simple story: lesser-known banks are catching up. They’re not only matching but sometimes beating larger peers in profit growth and return ratios.
Interestingly, when you track search and media trends, PSU banks have seen a visible spike in attention since mid-2025, largely after reports showed they outgrew private banks in loan expansion for the first time in 14 years.
That said, these are still not sought after or hyped as much as the top-tier names, which makes them attractive to investors looking for early identification before full market attention sets in.
Drivers of the next leg
As India enters another festive quarter, the demand for credit, particularly retail loans, automobile finance, and SME lending, is rising.
Deposit growth has been healthy, the interest rates are steady, and the inflation is relatively under control. These conditions are ideal for banks with clean books and room to expand.
The investor lesson
Hidden banks don’t stay unknown forever. As loan books expand and NPAs fall, the estimations tend to catch up fast.
The key is to look for banks that have cleaned up balance sheets, but haven’t been rewarded in price-to-book multiples. That’s where most long-term alpha hides.
Right now, that list likely includes three different banks tied by a single common factor: stable fundamentals in a noisy market.
Disclaimer
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Archana Chettiar is a writer with over a decade of experience in storytelling and, in particular, investor education. In a previous assignment, at Equentis Wealth Advisory, she led innovation and communication initiatives. Here she focused her writing on stocks and other investment avenues that could empower her readers to make potentially better investment decisions.
Disclosure: The writer and her dependents do not hold the stocks discussed in this article.
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