PSU banks sink up to 40% in 2025. Can SBI’s leadership, policy tailwinds drive a comeback?

Stocks of public sector banks have had a lackluster run on Dalal Street in 2025 so far, significantly underperforming not just private banks but also the broader Nifty, with some falling by up to 40%. With the tailwinds of lower interest rates, the RBI’s accommodative stance, and decent earnings, can PSU banks engineer a comeback? Here’s what experts say.

The average year-to-date (YTD) return of PSU banks stands at -9%, compared to 8% for Nifty Bank and 2.5% for the Nifty during the same period.

The biggest loser in the pack has been Punjab & Sind Bank (PSB), which has fallen 40%, followed by Central Bank of India and UCO Bank, which have declined by 32% and 28%, respectively. Next in line are Indian Overseas Bank and Bank of Maharashtra (BoM), whose share prices have eroded by 27% and 4%.

Apart from SBI, Indian Bank, Bank of India (BoI), Bank of Baroda (BoB), and Union Bank have delivered positive returns of up to 12%.

For the sector to fire, India’s largest lender the State Bank of India (SBI) must take the lead. SBI shares have managed to give sub 1% returns on the year-to-date basis. On Saturday, the state-lender announced a lower than estimated fall in its Q4FY25 net profit though its net interest income (NII) stood broadly in line with Street’s estimates.

Six other PSU banks have declared their earnings while five are yet to announce their results. In terms of YoY Q4 profit growth, PSB tops the chart with 125% surge and a stellar 63% jump in its NII. Indian Bank, IOB, Central Bank and UCO also reported a double-digit PAT growth between 32% and 23%. Meanwhile, NII for IOB, UCO and Bank of Maharashtra remained in double-digits. For Indian Bank it was a 6% uptick and a 4% decline for Central Bank.

Punjab National Bank (PNB), Bank of Baroda (BoB), Union Bank, BoI and Canara Bank are yet to announce their January-December quarter earnings.

The lenders have witnessed pressure on their net interest margins (NIMs) with cost of funds rising for the financial year and the rate cuts have had a bearing on the margins.

However, the credit growth for the overall banking sector is expected to improve six months down the line because of rate cuts, Sandip Sabharwal said.

CA Rudramurthy BV has advised investors to be “very stock specific” when it comes to PSU banks, calling SBI and BoB as top picks.

Following SBI’s earnings, brokerages like Motilal Oswal, Nuvama have come out with their recommendations, maintaining a ‘Buy’ rating on the stock.

Also Read: SBI shares drop 2% after Q4 profit falls 10% YoY. What should investors do?

PSU Banks on charts

The Nifty PSU Bank index has confirmed a valid inverted head-and-shoulders breakout near the 6,500 level and post the breakout, it rallied, retraced and held firm at the neckline which is a strong sign of support, Axis Securities said in a note.

The weekly chart hints at a bullish flag breakout in the making which means that as long as the critical support of at 5,900 (April 7 low) holds, there’s potential for a move toward 7,500 which is a 12% upside from the last close, this brokerage said, adding that a decisive break above 6,840 will be key for the bulls to stay in charge.

ETMarkets.com

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)