Which Public Sector Bank is Worth Investment?

Why Are Public Sector Banks Back in Focus as Systematix Initiates Coverage?

Systematix Institutional Research has initiated coverage on a clutch of public sector banks (PSBs) including Bank of Baroda, Bank of India, Bank of Maharashtra and Union Bank, assigning them a positive outlook. Interestingly, Indian Bank has been given a ‘Hold’ recommendation, reflecting selective optimism across the PSB universe. This comes at a time when PSBs are showing a structural turnaround after years of underperformance compared to private sector banks (PVBs).

About the Banks Under Coverage

The banks covered by Systematix represent a large portion of the PSB landscape:

• Bank of Baroda (BOB): One of India’s largest PSBs with a strong international presence.
• Bank of India (BOI): A legacy lender with a pan-India reach and improving asset quality.
• Bank of Maharashtra (BOM): Known for its strong regional presence and consistent deposit base.
• Union Bank of India (UNBK): Post amalgamation, Union Bank has scaled up operations and is focusing on digital adoption.
• Indian Bank (INBK): Despite being fundamentally strong, it has been assigned a ‘Hold’ due to relatively limited upside at current valuations.

Key Highlight: PSBs have gained investor attention after several years of decline in market share, now showing signs of sustainable recovery.

Initiating Coverage – Target Price Overview

Company	Rating	CMP (₹)	Target Price (₹)
BOB	BUY	246	325
BOI	BUY	120	150
BOM	BUY	57	69
UNBK	BUY	137	160
INBK	HOLD	704	765

Key Structural Trends Driving PSBs

PSBs turned around in FY25 after witnessing a steady decline in their advances market share, which fell from 74.9% in 2011 to 51.8% in 2024.

Household deposits form 67.6% of liabilities for PSBs, compared to 52.1% for private banks – highlighting a stronger liability profile.

With improvements in technology-driven underwriting, PSBs have reduced their asset quality gap versus private banks, with better PCR and controlled gross slippage ratios.

Recoveries from technically written-off accounts have boosted PSBs’ return on assets (RoA), providing a sustainable profitability outlook.

Fee income is gradually improving for PSBs as they expand third-party product distribution, narrowing the gap with private players.

PSBs’ relatively lower exposure to external benchmark-linked rate (EBLR) loans and deposit rate adjustments have allowed them to defend their Net Interest Margins better than many private peers.

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Investor Takeaway

The coverage initiation by Systematix underscores the positive momentum in public sector banks, driven by better liability structures, improved underwriting practices, higher recoveries and a more balanced earnings mix. Investors should note the differentiated call on Indian Bank, highlighting the importance of stock-specific evaluation even within the same sector.

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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.

tags: Systematix, Bank of Baroda, Bank of India, Bank of Maharashtra, Union Bank, Indian Bank, PSBs vs PVBs, Banking Sector Outlook