Large PSU bank shares are in the limelight on Dalal Street with several of them trading close to their respective 52-week highs. Investors have been bullish on large PSU bank shares with recent media reports highlighting that the central government is keen on further consolidation of banks in this segment.
Also, with several recent steps taken by the Union government and RBI, including GST rate cuts and repo cuts respectively, investors on Dalal Street are betting on a revival in bank credit growth during the festival season that has commenced.
It was no surprise that SBI, the largest bank in the country, was lower by 0.8% at Rs 855 on Monday, and not too far from its 52-week high of Rs 875.5 that was reached on 6 December 2024. Punjab National Bank (PNB) was lower by 0.3% at Rs 113 on Monday, and not too far from its 52-week high of Rs 115.75 that was reached on 16 July 2025. Similarly, Bank of Baroda (BOB), was lower by 0.4% at Rs 251 on Monday, and not too far from its 52-week high of Rs 266.8 that was reached on 6 December 2024.
And while no specific details are available of a merger strategy amongst PSU banks, however, media reports indicate that the government is keen on larger and fewer PSU banks to meet the credit needs of the growing economy over the next few years.
In the earlier consolidation plan of 2020, the government had reduced the number of PSU banks from 27 to 12 banks. Analysts tracking the banking sector highlight that larger PSU banks bring economies of scale over the medium term, in terms of access to a wider customer base for loans and deposits, fall in operating costs and an improvement in the key operational parameter, net interest margin (NIMs).
Meanwhile, the steps taken by central government and RBI are expected to revive credit growth in the economy, going forward – bank credit outstanding at Rs 185,01,872 crore as on 25 July 2025, a growth of 10 % on a y-o-y basis, according to data sourced from the RBI. And in late July 2024, bank credit outstanding in the system had grown 13.6 % y-o-y, according to RBI data.
BOB vs PNB: A Comparison
For a key operational parameter net interest margin (NIM), for Bank of Baroda, the third largest PSU bank, its NIM was 2.91 % in the June 2025 quarter vis-a-vis 3.18 % a year. And in the case of PNB, the second-largest PSU bank in the country, its domestic NIM was 2.84% in the June 2025 quarter vis-a-vis 3.21% a year earlier. The central bank had cut repo rates in its meeting in early June 2025, and while interest rates on bank loans / credit facilities have come down, interest rates on deposits with the bank come down with a lag.
For SBI, the larger rival, its domestic NIM was 3.02% in the June 2025 quarter vis-a-vis 3.35 % a year earlier.
Meanwhile, Bank of Baroda had grown its total advances by 12.6 % y-o-y to Rs 12.07 lakh crore in the first quarter of FY 26. In the case of PNB, its total advances grew by 9.8 % y-o-y to Rs 11.29 lakh crore in the June 2025 quarter.
Asset quality of the banks was also fairly stable — In the case of PNB, its % of net NPAs was 0.38 % in the June 2025 quarter vis-a-vis 0.6 % a year earlier.
Bank of Baroda’s provisions had jumped nearly 94.6 % y-o-y to Rs 1,966.9 crore in the June 2025 quarter. And its net NPA to net advances 0.6 % in the June 2025 quarter vis-a-vis 0.69 % a year earlier.
SBI’s % of net NPAs was 0.47 % in the June 2025 quarter vis-à-vis 0.57 % a year earlier.
However, PNB Bank’s standalone net profit declined nearly 49 % y-o-y to Rs 1,675 crore in the June 2025 quarter, on account of a one-time charge of Rs 3,324 crore in the quarter related to shifting to lower tax regime. Bank of Baroda’s higher provisions in the June 2025 quarter, and as a result, its standalone net profit grew 1.8 % y-o-y at Rs 4,541 crore in the June 2025 quarter.
And SBI’s standalone net profit grew nearly 12.5 % y-o-y to Rs 19,160 crore in the June 2025 quarte
There was wide variance on a key parameter of operational excellence — PNB Bank’s return on assets (annualised) was 0.37 % in the June 2025 quarter while it was 1.03 % for Bank of Baroda in the quarter under review.
SBI’s return on average assets (annualized) was 1.14 % in the June 2025 quarter. In the case of the largest private sector bank, HDFC Bank, its return on assets (average) not annualized was 0.48 % in the June 2025 quarter. On an annualized basis, it would be nearly 1.92 % for the full financial year
Outlook and valuation
Bank of Baroda trades at a P/E of nearly 6.5 times estimated standalone FY26 earnings. PNB trades at a PE of nearly 16 times estimated standalone FY26 earnings.
SBI trades at a P/E of nearly 10 times estimated standalone FY 26 earnings.
Large PSU bank shares have already run up quite a bit. Readers can keep large PSU bank stocks on their radar and see whether these valuations hold in time to come.
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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