PSU Banks Bounce Back: Indian Bank, Bank of India, And 10 Other PSU Stock Rises Amid Strong Q2 FY25 Results

Indian public sector bank stocks made a strong comeback in October, even as major stock indices like the Nifty 50 and Sensex faced their worst monthly performance in over 4 years. 

Nifty PSU Bank has given 3.14% in the past 5 days and 7.32% in the last 1 month. The recovery was driven by better-than-expected quarterly results from key banks such as Bank of India, Bank of Baroda, Indian Bank, and Canara Bank. These banks exceeded market expectations, prompting domestic brokerage firms to raise their target prices, further boosting the rally.

Indian Bank was the top performer, seeing a 10.48% surge in stock price, followed by other banks like Central Bank of India and Bank of India share, which gained between 4.98% and 6.99%.

Positive Results from Public Sector Banks in Q2 FY25

Out of the 12 public sector banks, 9 have already reported strong results for the September quarter. All of them showed a rise in net profit and improvements in asset quality. For instance, Punjab National Bank (PNB) posted a more than twofold profit increase to ₹4,306 crore, driven by higher interest income and better recoveries. Its asset quality also improved, with gross non-performing assets (NPAs) dropping to 4.48% from 6.96% last year.

Other notable performers include Central Bank of India, which saw a 51% increase in profit to ₹913 crore, and UCO Bank, which reported a 50% rise in profit. Bank of Baroda recorded a 23% profit increase, while Indian Bank saw a 36% rise. In contrast, private banks such as HDFC Bank and Kotak Mahindra Bank saw a slight rise in their gross NPAs.

Private Banks Face Pressure, While PSBs Improve

While public sector banks showed improvement, private sector banks struggled with rising bad loans. Lenders like HDFC Bank and Kotak Mahindra Bank faced a slight increase in their bad loans, especially in segments like personal loans and credit cards. Many of these private banks have increased their provisions to cover potential defaults, particularly in unsecured lending.

Factors Behind the Recovery of PSBs

The government’s focus on infrastructure and capital expenditure after the pandemic, healthier balance sheets, and improved governance have contributed to the sector’s growth. Over the last 5 years, PSU banks have shown a significant profit revival, with their earnings growing at a compound annual growth rate (CAGR) of 33.8% from FY19 to FY24.

Loss-making PSUs have significantly reduced, contributing only 1% to the profit pool in FY24, compared to 45% in FY18. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.