Best PSU Banks in India: The economy of every nation revolves around its financial sector. When India got its independence, it was necessary to establish a robust financial system to handle the growth of credit. The Indian government purchased and formed public sector banks to address this issue.
It enabled them to offer a wide range of support initiatives and offering interest at rates lower than private banks. In this article, we are going to analyse the best PSU banks in India. Keep reading to learn more about them.
What are PSU Banks?
The Public sector or nationalized banks are those in which the government holds more than half of the equity. Currently, there are 12 PSU banks in India.
The government formulates all the financial guidelines for public sector banks. The public sector banks operate under the government to inspire trust in the depositors that their money is safe. In those banks, the government has retained a majority of its share with the primary aim of protecting the public interest.
Industry Overview
The Indian banking system consists of 12 public sector banks, 22 private sector banks and 44 foreign banks. In addition to that, the country also has 43 regional rural banks, 1,484 urban cooperative banks, and 96,000 rural cooperative banks.
As of September 2022, the total number of ATMs in India reached 217,308 out of which 49.81% are in rural and semi-urban areas.
These 12 PSBs witnessed a 57 percent increase in total profit in FY23 compared to Rs 66,539.98 crore earned in 2021-22. As of 2022, Total Public sector banking assets stood at $1,353.10B.
As of June 01, 2022, the number of bank accounts—opened under the government’s flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—reached 45.60 crore and deposits in the Jan Dhan bank accounts totaled Rs. 1.68 trillion (US$ 21.56 billion).
The digital payments revolution will trigger massive changes in the way credit is disbursed in India. Debit cards have radically replaced credit cards as the preferred payment mode in India after demonetization.
In November 2022, Unified Payments Interface (UPI) recorded 7.30 billion transactions worth Rs. 12.11 trillion (US$ 148.63 billion).
Here are a few important metrics that you should know before analyzing a stock:
- Net Interest Income (NII): It is the difference between interest earned from a bank’s lending activities to its customers and the interest paid to account holders.
- CASA Ratio: It is a ratio of deposits in current and savings accounts to total deposits. A high CASA ratio indicates a lower cost of funds.
- Credit Deposit Ratio (CDR): It is the ratio of how much a bank lends out of the deposits it has mobilized.
- Gross Non-performing asset (GNPA): It is the total value of all unpaid loans that are classified as non-performing loans.
- Net Non-performing asset (NNPA): It is the amount remaining after deducting doubtful and unpaid debts from the GNPA.
- Capital Adequacy Ratio: It helps make sure banks have enough capital to protect depositors’ money.
Best PSU Banks in India
Now let us have a look at the Top public sector banking stocks in India.
Best PSU Banks in India #1 – State Bank of India
| Face Value (₹) | 1 | ROE(%): | 14.96% |
| Market Cap (Cr): | ₹ 5,13,255 | Net interest margin(%): | 3.58 |
| EPS (₹): | 62.4 | Credit deposit ratio(CDR): | 73.13% |
| Stock P/E: | 9.22 | CASA Ratio: | 43.80 |
| Dividend Yield(%): | 1.23% | Gross NPA(%): | 3.0 |
| Net NPA(%) | 0.67 | Capital Adequacy Ratio(%) | 14.68 |
| ROCE(%): | 1.74 | Price/BV | 1.68 |
The State Bank of India (SBI) is the country’s oldest bank, with over 200 years of history and a premier position in terms of balance sheet size, number of branches, and market capitalization. It is also a part of the Fortune Global 500 list.
The PSU bank is strategically entering into many new businesses with strategic tie-ups in pension funds, general insurance, custodian services, private equity, mobile banking, etc., each of which has huge potential for growth.
In 2019, SBI merged six nationalized banks, resulting in the availability of technology and expertise from the smaller banks, and acquiring a broad customer base.
As of march FY23, the bank had more than 480 million customers served through 22,405 branches and 65,627 ATMs. It is the third-largest company in India by market capitalization.
SBI earned a net interest income of Rs 1,44,841 crores in FY22-23 and a net profit of Rs 56,558 crore. In fact, the bank has been able to maintain consistent growth in its profits and revenue on a quarterly basis.
It has an extraordinary ROE and ROCE of 14.96 percent and 1.74 percent, respectively. The bank stock P/E of 9.33 is below its industry P/E of 10.8, indicating a slight underpricing of the stock.
Best PSU Banks in India #2 – Bank of Baroda
| Face Value (₹) | 2 | ROE(%): | 14.05% |
| Market Cap (Cr): | ₹ 94,067 | Net interest margin(%): | 2.89 |
| EPS (₹): | 28.8 | Credit deposit ratio(CDR): | 78.04% |
| Stock P/E: | 6.32 | CASA Ratio: | 42.25% |
| Dividend Yield(%): | 2.98% | Gross NPA(%): | 3.79 |
| Net NPA(%) | 0.89 | Capital Adequacy Ratio(%) | 16.24 |
| ROCE(%): | 2.05% | Price/BV | 1.04 |
Bank of Baroda(BOB) is engaged in providing various services, such as personal banking, corporate banking, international banking, small and medium enterprise (SME) banking, rural banking, non-resident Indian (NRI) services, and treasury services.
As of March FY23, The Bank has more than 30 million customers served through 8,178 branches and 9,200 ATMs,
BOB earned a net interest income of Rs 41,355 crore in FY22-23 and a net profit of Rs 14,688 crore. In fact, the bank has been able to maintain consistent growth in its profits and revenue on a quarterly basis, and it has maintained a healthy dividend payout of 19.1%.
In 2019, the Indian government approved the amalgamation of Vijaya Bank and Dena Bank into the Bank of Baroda to increase market share and reduce the NPAs.
It has an extraordinary ROE and ROCE of 14.05 percent and 2.05 percent, respectively. The Bank stock P/E of 6.32 is below its industry P/E of 10.8, indicating underpricing of the stock.
Best PSU Stocks in India #3 – Canara Bank
| Face Value (₹) | ₹10.0 | ROE(%): | 14.25 % |
| Market Cap (Cr): | ₹ 54,052 | Net interest margin(%): | 2.38 |
| EPS (₹): | ₹62 | Credit deposit ratio(CDR): | 70.47% |
| Stock P/E: | 4.8 | CASA Ratio: | 33.48 |
| Dividend Yield(%): | 2.18% | Gross NPA(%): | 5.35 |
| Net NPA(%) | 1.73 | Capital Adequacy Ratio(%) | 16.68% |
| ROCE(%): | 2.12% | Price/BV | 0.77 |
Canara Bank is engaged in Treasury Operations, Retail Banking Operations, Wholesale Banking Operations, and Other Banking Operations. Canara Bank occupies a premier position in the community of Indian banks.
In 2019, the Indian government approved the amalgamation of the syndicate bank into Canara Bank to build it as a globally competitive lender.
Canara Bank is the first public sector bank to tie up with NPCI Bharat Bill Pay to process cross-border inbound bill payments from Oman.
As of March FY23, the bank had more than 108 million customers served through 22,627 branches, 3 branches overseas, and 10,726 ATMs.
The bank has launched an API banking platform to provide seamless banking services to our corporate clients. Canara Bank has launched the ‘Canara Digital Rupee’ mobile application as part of the Reserve Bank of India’s Central Bank Digital Currency (CBDC) pilot project.
Canara Bank earned a net interest income of Rs 31,436 crores and a net profit of Rs 10,808 Crore in FY22-23. In fact, the bank has been able to maintain consistent growth of its profits and revenue on a quarterly basis and Bank has been maintaining a healthy dividend payout of 19.3%
Further, it has an extraordinary ROE and ROCE of 14.25 percent and 2.12 percent, respectively. The bank stock P/E is 4.82 below its industry P/E of 10.8 indicating underpricing of the stock.
Best PSU Banks in India #4 – Punjab National Bank
| Face Value (₹) | 2 | ROE(%): | 3.25 % |
| Market Cap (Cr): | ₹ 55,672 | Net interest margin(%): | 2.34% |
| EPS (₹): | 3.04 | Credit deposit ratio(CDR): | 64.90% |
| Stock P/E: | 16.2 | CASA Ratio: | 43% |
| Dividend Yield(%): | 1.28% | Gross NPA(%): | 8.74% |
| Net NPA(%) | 2.72% | Capital Adequacy Ratio(%) | 15.50% |
| ROCE(%): | 1.56% | Price/BV | 0.56 |
Punjab National Bank is one of the oldest banks in India, having a virtual presence in every important center of the country. The bank caters to a wide variety of audiences through a spectrum of services, including corporate and personal banking, industrial finance, agricultural finance, and international finance.
The core focus of the bank is on retaining and further improving low-cost deposits, lending to agriculture and small and medium enterprises, and repositioning subsidiaries and joint ventures.
As of March FY23, the bank had served more than 180 million customers through 10,076 branches and 12,898 ATMs.
Punjab National Bank earned a net interest income of Rs 34,492 crores and a net profit of Rs 3,069 crore in FY22-23
Further, it has an ROE and ROCE of 3.25 percent and 1.56 percent, respectively. The bank stock P/E is 16.7 below its industry P/E of 10.8, indicating underpricing of the stock.
Punjab National Bank became India’s second-largest public sector bank in terms of branch network in 2019 after the State Bank of India, After the Indian government approved the merger of the Oriental Bank of Commerce and the United Bank of India.
Best PSU Banks in India #5 – Union Bank of India
| Face Value (₹) | 10 | ROE(%): | 10.80% |
| Market Cap (Cr): | ₹ 47,939 | Net interest margin(%): | 2.57 |
| EPS (₹): | 12.4 | Credit deposit ratio(CDR): | 68.21% |
| Stock P/E: | 5.64 | CASA Ratio: | 35.62 |
| Dividend Yield(%): | 2.67% | Gross NPA(%): | 7.53 |
| Net NPA(%) | 1.70 | Capital Adequacy Ratio(%) | 16.04 |
| ROCE(%): | 2.05% | Price/BV | 0.67 |
Union Bank of India is engaged in the Business of Banking Services, Government Business, Merchant Banking, Agency Business Insurance, Mutual Funds, Wealth Management, etc. The overseas offices of the banks are located in Hong Kong, Sydney, Abu Dhabi, Beijing, Shanghai, and London.
As of March FY23, the bank had served more than 155 million customers through 8,580 branches and 10,835 ATMs. Recently, Andhra Bank and Corporation Bank were amalgamated into Union Bank of India to increase the bank’s diversification and financial capacity.
The bank’s total business as of 31st March 2023 stood at Rs. 19,27,621 crore, comprising Rs. 11,17,716 crore of deposits and Rs. 8,09,905 crore of advances.
Union Bank of India has secured the first rank as per the report on the EASE reform index for Q3 FY 2022-23 published by the Indian Banks Association (IBA).
Union Bank earned a net interest income of Rs 32,765 crores and a net profit of Rs 8,430 crore in FY22-23.
Further, it has an ROE and ROCE of 10.80 percent and 2.05 percent, respectively. The bank stock P/E is 5.64 below its industry P/E of 10.8, indicating underpricing of the stock.
In closing
For many years, PSU banks have contributed significantly to raising financial inclusion so In the Indian banking industry, these PSU banks are regarded as pioneers. These banks have the ability to significantly contribute to India’s $5 trillion economy by integrating, reducing NPAs, and exchanging expertise.
That’s all for this article on Best PSU Banks in India. Happy investing!
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