PSU bank shares were in the limelight on Tuesday trade with several stocks from this sector trading close to their 52-week high.
Why investors are rushing back
Several factors have led to investors rushing to buy leading PSU bank shares.
First, much lower valuations vis-a-vis leading private bank shares
Second, strong December 2025 quarterly business updates from several PSU banks at a time when consumer spending is showing signs of picking up,
Third, specific liquidity measures introduced by the RBI to boost lending in the broader banking system and the various measures taken by the government to boost economic activity including the earlier income tax cuts.
The new PSU highs
And it was no surprise that the government controlled State Bank of India (SBI), the largest bank in the country, had risen 1.5% in late Tuesday trade to Rs 1,020. The stock had reached its 52-week high of Rs 1,024 earlier in the trading day.
Punjab National Bank (PNB), the second-largest PSU bank, gained 0.4% to Rs 125.6 in late Tuesday’s trade, and it had reached its 52-week high of Rs 128.3 on 5 January, 2026.
And Bank of Baroda was weaker by 0.7% to Rs 304.6 on Tuesday. However, it had reached its 52-week high of Rs 311.9 on 5 January, 2026.
Even, the mid-sized PSU bank, Bank of India was flat in late Tuesday trade at Rs 150.2, and it had reached its 52-week high of Rs 153.2 earlier in the trading day.
Strong business updates from PSU banks
New Delhi-based PNB Bank reported a near 11% growth in its global advances to Rs 12.32 lakh crore in the December 2025 quarter, while Bank of Baroda reported a 14.6% rise in its global advances to Rs 13.43 lakh crore in Q3FY26.
And Bank of India reported a 13.6% growth in its global advances to Rs 7.39 lakh crore in Q3FY26.
The growth in advances reported by PSU banks is in tune with the growth reported by HDFC Bank, the largest private sector bank, which on Monday, highlighted its gross advances at the end of the December 2025 quarter were Rs 28.44 lakh crore, a growth of nearly 11.9% on a y-o-y basis.
Investors are keeping a close eye on growth in bank advances to track uptrends in consumer spending patterns, post the GST tax cuts that came into force late September 2025. The income tax cuts announced a year ago too are expected to boost consumer spending.
Steps taken by RBI and government to boost economy
The RBI has taken several steps to expand lending in the economy and lower the cost of loans / credit including the recent repo cut in early December 2025.
The central government had also lowered GST rates on a vast majority of goods consumed on a daily basis. In addition, the government’s lower personal income tax is expected to give a fill up to consumption expenditure in the economy.
And PSU banks shares are becoming an increasingly popular way to play the upturn in the Indian economy, which is expected to grow between 6.5% to 7% in the current financial year. The Indian economy remains the world’s fastest growing economy, despite the tariffs and protectionist measures of the Trump administration.
Changes to Nifty bank index
Investors are increasingly broadening their exposure to bank stocks beyond the leading four private sector banks and SBI.
And that’s because a recent SEBI circular related to Nifty Bank Index, limits the weight of the top constituents of Nifty Bank Index at 20% from 33% currently, while the combined weight of the top three constituents cannot exceed 45%, compared to the current 62%.
The adjustment will be done in four tranches till March 31, 2026. HDFC Bank had a 28.49% weightage on the Nifty Bank, while ICICI Bank had a 24.38% weightage at the end of September 2025.
Efficiency kings – return on Assets (ROA)
Bank of Baroda’s return on assets (annualised) was 1.07 % in the September 2025 quarter while it was 1.05% for PNB Bank.
SBI’s return on assets (annualised) was 1.17% in the September 2025 quarter while Bank of India’s return on assets (annualised) was 0.9% in the September 2025 quarter.
Meanwhile, HDFC Bank has a return on assets (average) – not annualized of 0.49% in the September 2025 quarter; annualizing for FY26 it would be nearly 1.96%.
And Kotak Mahindra Bank’s return on average assets was 0.47% in the September 2025 quarter, and on annualizing it would be nearly 1.88 % for FY26.
Reasonable valuations of PSU banks
PNB and Bank of Baroda trade at 1.1 times their (standalone) book value, according to Screener.in, while SBI trades at 1.8 times its (standalone) book value.
PNB trades at a standalone PE of 9.2 times, according to Screener.in, while Bank of Baroda trades at 8.1 times.
SBI trades at a standalone P/E of 13.2 times, while Bank of India trades at a standalone P/E of 6.9 times.
Bank of India trades at 0.8 times its (standalone) book value.
The core banking operations are reflected in the standalone results of the respective bank.
Meanwhile, HDFC Bank trades at a (standalone) book value of 2.9 times, according to Screener.in, while Kotak Mahindra Bank trades at 3.4 times.
HDFC Bank has a standalone P/E of 20.8 times while it is 31.9 times for Kotak Mahindra Bank.
Investors on Dalal Street
PSU banks, no doubt, trade at reasonable valuations vis-a-vis leading private sector banks. Also, the growth prospects of PSU banks does appear attractive. These banks are expected to retain the growth momentum for loans, going forward, given the anticipated uptick in consumer spending and growth in the broader economy, going forward.
Investors can put PSU bank shares on their watch list for 2026.
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.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer and his family do not hold the stocks discussed in this article.
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