Public Sector Undertaking (PSU) banking stocks have witnessed a dramatic turnaround over the last three years. Stocks from the sector have rallied, fuelled by a “Goldilocks” scenario of record profits, drastically improved balance sheets, and structural government reforms.
Amid the growth, here are 3 undervalued PSU banking stocks to watch. In choosing undervalued PSU banking stocks, we have kept in mind an ROE of more than 15%, a price to book value under 2 and a price to earnings ratio under 10.
It’s important to recognize that undervalued parameters can vary, and not every stock performs well across all metrics. This editorial is not a stock recommendation.
Let’s now take a look at the list…
#1 Bank of Maharashtra
Bank of Maharashtra is an important Indian public sector bank headquartered in Pune. Established in 1935, it has grown from a regional lender focused on small businesses into one of India’s significant public sector banks with a nationwide presence.
| ROE | 19.3% |
| Price to book value | 1.6 times |
| Price to earnings ratio | 8.1 times |
| Dividend | 15% |
Source: Equitymaster
Bank of Maharashtra has a strong ROE of 19.3%. The Bank has a strong capital adequacy ratio of 20.5%.
With a Net NPA of 0.15% (as of Q3 FY2026), it has one of the cleanest balance sheets in the Indian banking sector. This allows the bank to focus on expansion rather than debt recovery.
The bank has done well in Q3 FY26, beating earlier guidance. The total business for the period was up 17.24%, against the bank’s guidance of 15% growth year-on-year.
Total deposits have increased by 15.3% against the guidance number of 14%. The bank did much better on the return on assets front, as against the projected number.
Moving ahead, Bank of Maharashtra is fast expanding its presence in potential growth centers of the country. The bank has a 5-year plan to open 1,000 branches in the next five years.
In FY26, Bank of Maharashtra has taken a big initiative to open 321 branches, and is calling it Project 321. The idea under the plan is to open 321 branches in the next 18 months.
The bank is aggressively targeting Retail, Agriculture, and MSME (RAM) lending. These sectors currently make up over 62% of its domestic advances, providing higher yields and lower risk compared to large corporate loans.
#2 Canara Bank
Next on our list is the stock of Canara Bank.
Canara Bank is one of India’s largest and oldest public sector banks. Established in 1906, it has grown from a regional initiative into a global financial institution with a presence in London, New York, Dubai, and Hong Kong.
| ROE | 16.6% |
| Price to book value | 1.2 times |
| Price to earnings ratio | 7 times |
| Dividend | 200% |
Source: Equitymaster
Canara Bank has a strong ROE of 16.6%. The bank also gives a good dividend yield, with a reasonable price to book value of 1.2 times.
The bank has been performing exceptionally well over the last few quarters. The trend continued in Q3 FY26.
Operating profits stood at 91,190 m and increased on a year-on-year basis at 16.36%. The net profit stood at Rs 51,550 m and grew at 25.61% on a YoY basis.
The return on assets improved by 9 basis points year-on-year basis and stood at 1.13%. The credit cost for Canara Bank was at 0.64% and improved by 25 basis points YoY.
The asset quality also saw a good improvement. The GNPA declined by a solid 126 basis points year-on-year and stood at 2.08%. The net NPA stood at 0.45% and declined by 44 basis points year-on-year basis.
Now coming to the guidance parameters, in the beginning of the financial year, the management had given guidance numbers for 13 parameters, and the bank has comfortably surpassed 11 parameters, except CASA and NIM, which is industry challenge.
Overall, the bank’s fundamentals and improving metrics suggest growth ahead in the coming quarters, but it remains sensitive to macroeconomic conditions and sector wide trends.
#3 Union Bank
Union Bank of India is one of India’s large government-owned banks. The bank has expanded significantly after merging with Andhra Bank and Corporation Bank in 2020.
Union Bank of India offers retail, corporate, MSME, and digital banking services across a wide network of branches in India, along with select international operations.
| ROE | 15.8% |
| Price to book value | 1.2 times |
| Price to earnings ratio | 7.9 times |
| Dividend | 48% |
Source: Equitymaster
Union Bank of India has a strong ROE of 15.8%, with a reasonable book value of 1.2 times when compared to peers.
Coming to the financial performance for FY26, advances increased by 7.13%, and the total deposit grew by 3.36%. The CASA increased by a solid 140 basis point quarter-on-quarter, which was a big positive.
Net profits at the bank surged to Rs 50,228 m vs Rs 45,972 m YoY.
Moving ahead, broad banking sector trends in India remain strong with resilient asset quality and low bad loans, creating a supportive environment for growth.
Union Bank is positioned for steady growth, driven by expanding retail and regional business, stronger capital and asset quality, and continuing digital innovation in India’s robust banking landscape.
Should You Consider PSU Banking Stocks?
PSU banking stocks are revealing better metrics, thanks to a strong balance-sheet clean-up seen over the past few years.
Public sector lenders have reported lower bad loans, better capital ratios and steady credit growth across retail, MSME, and infrastructure segments.
In addition, government backing provides a layer of stability during economic stress.
However, PSU banks tend to be more cyclical and can face pressure if interest rates are volatile or if economic growth slows.
Investors should evaluate the company’s fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
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