India’s public sector banks (PSBs) have seen their average market valuation rise by a staggering 225 percent over past five years, driven by a combination of post-merger efficiency, improved asset quality, record profitability and reduced dependence on government capital.
According to data of 11 major PSU banks, the average price-to-book (P/B) ratio has jumped from 0.35 in March 2020 to 1.14 in July 2025.
In March 2020, most PSB stocks were trading well-below their book value, with Indian Bank at 0.10x, Union Bank at 0.26x, and even State Bank of India (SBI), the largest lender, at just 0.71x. This situation has improved very quickly, and by July 2025, multiples of PSU banks have seen a broadbased surge, though the extent of re-rating varies across lenders.
The most dramatic transformation has been in Central Bank of India, which was trading at just 0.13x book value in March 2020, but now commands a P/B ratio of 1.41, marking a more than 10-fold re-rating.
Indian Bank too has seen a steep jump from 0.10x to 1.18x, reflecting over 1,000 percent growth in valuation.
Indian Overseas Bank and UCO Bank too have seen exceptional re-rating. Indian Overseas Bank rose from 0.47x to 2.19x, the highest P/B multiple among PSU banks, while UCO Bank jumped from 0.25x to 1.39x. Bank of Maharashtra followed closely, moving from 0.42x to 2.01x, supported by its strong loan book growth.
Among the larger lenders, Canara Bank’s P/B ratio rose from 0.43x to 1.38x, Bank of Baroda improved from 0.39x to 1.13x, and Punjab National Bank increased from 0.38x to 1.01x. Union Bank of India too saw its multiple rise from 0.26x to 0.84x, while Bank of India moved from 0.24x to 0.96x, reflecting steady but more moderate re-ratings.
The country’s largest lender, State Bank of India (SBI), also saw its valuation improve from 0.71x in March 2020 to 1.46x in July 2025.
The banking turnaround gained momentum post the 2020 merger which brought scale, efficiency and stronger balance sheets to mid-sized PSU banks.
Punjab National Bank absorbed Oriental Bank of Commerce and United Bank of India, Canara Bank took over Syndicate Bank, Indian Bank merged with Allahabad Bank, and Union Bank of India integrated Andhra and Corporation Bank.
Backed by better credit underwriting and higher loan demand, PSBs delivered record profitability in FY25, when they collectively posted net profit of Rs 3.71 lakh crore. For the first time in over 14 years, public sector banks outpaced private peers in loan growth, expanding their credit portfolios by 13.1 percent on-year, compared to 9 percent by private lenders, according to RBI data.
The banks’ asset quality has also seen improvement. Gross non-performing assets (GNPAs) for PSU banks have fallen from over 14 percent in FY20 to just above 3 percent in FY24, as per the latest available data.
PSU banks have also significantly reduced their reliance on direct capital infusions from the government. Between FY16 and FY20, the government had injected over Rs 3.15 lakh crore into public sector banks to help them clean up bad loans and meet regulatory capital norms. This trend reversed in recent years as most PSU banks have returned to profitability and improved their capital adequacy levels.
Instead of depending on the exchequer, PSU banks are increasingly turning to market-based capital raising avenues such as qualified institutional placements (QIPs), follow-on public offers (FPOs), and infrastructure bonds.
In FY26, PSU banks are collectively expected to raise around Rs 45,000 crore through QIPs, according to a recent Moneycontrol report. SBI alone has raised Rs 25,000 crore to bolster its common equity tier-1 (CET1) capital, while UCO Bank, Indian Overseas Bank, and Central Bank of India have announced fresh equity issuances.
These capital raises are part of a broader effort to comply with Sebi’s 25 percent minimum public shareholding rule and support future credit growth.
Motilal Oswal Financial Services in a June 2025 report has identified State Bank of India (SBI), Bank of Baroda (BoB), and Punjab National Bank (PNB) as its top stock picks in the public sector banking space. Across all three names, Motilal Oswal sees a broader structural shift in PSU bank performance. The brokerage expects public sector banks to deliver over 10 percent compound annual growth in net profit through FY25-27.
The brokerage said SBI is viewed as the top pick among PSU banks, owing to its dominant scale, superior return on equity (RoE), and diversified loan book. Motilal Oswal added that SBI’s capital raising plans will enhance its CET1 ratio and support future lending growth.
Bank of Baroda’s return ratios, in the meanwhile, have also improved, and earnings have recovered steadily in recent quarters.
Punjab National Bank is rated ‘Neutral’ by Motilal Oswal but remains part of the brokerage’s core PSU stock basket. While the bank is yet to consistently achieve a 1 percent return on assets (RoA), it has made progress in post-merger integration and improving capital adequacy, the report added.
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