From Laggards to leaders: PSU Banks surpasses private colleagues in loan growth after 15 years

The Indian banks in the public sector (PSBs) have organized a remarkable turnaround, which is marked what a structural reset seems to be in profitability and market positioning. Once seen as a lagging stress of asset quality, the sector has now sustained the return on assets (ROA) of about 1% – a level that was long considered ambitious. Aggregated net profit for PSBs became a record high of £ 1.5 trillion in FY25, with their share in total bank profit back to almost half of the system.

This transformation is supported by stronger insurance technical, disciplined cost management and robust recovery. The activa quality has been greatly improved, with gross non-performing assets that fall from a peak of 14.6% in FY18 to 2.8% in FY25, while the net NPAs fell to only 0.5%. The coverage ratios of determination at ~ 79% are now ahead of private colleagues and offers a healthy pillow against future stress.

PSB’s credit momentum recovered at the front of growth. The growth of the loan in FY25 was 12%and surpasses private colleagues for the first time in 15 years, powered by retail, agricultural and MSME segments. With a strong deposit franchise that even more than 62% of the system depositos and comfortable liquidity coverage proportions, PSBs are well positioned to maintain 10-12% credit growth in the medium term annually.

However, the short term is not without challenges. The net interest rate margins are under pressure as a result of repeated repetition of the loan, although the liability reproduction and a pivot point to detailed retail deposits must alleviate the resistance of Late FY26. Treasury profits, who have contributed considerably to the income in the past quarters, is expected to be moderate as the bond returns stabilize. In the meantime, high cost income proportions remain a structural disadvantage, although digital acceptance, rationalization of staff and the government guided by the government gradually limit the gap.

Despite this headwind, the outlook in the medium term remains positive. The income for PSBs is expected to grow with a CAGR of 14% compared to FY26-28, with ROA stabilization with ~ 1.1% and efficiency on equity on ~ 16-18%. Stronger capital positions, cleaner balance sheets and resilience in power quality suggest that the sector is much better equipped to process cyclical decline than in the past.

For investors this not only marks a cyclical revival, but also a fundamental revaluation story PSBs are increasingly seen as competitive, profitable players in the Bank landscape of India.

SBI – TP: 1000

SBI remains well positioned to take advantage of its strong credit pipeline, diversified growth in retail and SME segments and efficiency gains of digital and AI-led initiatives. Structural factors such as a healthy deposit franchise, governmentcapexmomentum and disciplined cost management continue to support its profitability prospects. The quality of the assets is stabilized, with GNPA at 1.83% and NNPA at 0.47%, supported by cautious insurance. Recent performance reinforces this process, with receivables with 11.9% JoJ and margins that are expected to improve 2h on the back of CRR releases and the relief of deposit costs. We predict FY27E ROA/ROE at 1.1%/15.5%, with profit -upgrades that reflect robust operational statistics and sustainable profitability.

PNB – TP: 130

The PNB investment case is anchored in improving power quality, strong facilities buffers and a steadily recovery of profitability. GNPA/NNPA ratios have fallen to 3.78%/0.38%, while PCR has been reinforced to 90.3%, offering resilience against stress. The bank continues to produce balanced loan and deposit growth, with improving the income of reimbursements and strengthening the income of the treasury winsts. Although NIM had concluded a contract up to 2.7%in the short term, the relief of deposit costs and the expected tax savings should support the repair of the margin in 2h. Adapted Pat grew by 54% JoJ and the profit momentum emphasized despite a one -off tax effect. With FY27E ROA/ROE at 1.0%/15.2%, the ratings are attractive (the author is head – research, asset management, Motilal Oswal Financial Services LTD)

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