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Key Points

Public Sector Banks are celebrating a major milestone as their return on assets has crossed the 1% threshold. This achievement is backed by record-high profitability and stronger fundamentals. For the first time in 15 years, these banks have even outpaced their private sector counterparts in loan growth. Analysts believe this marks a sustainable new phase of steady returns for the sector.

Key Points: Public Sector Banks Hit 1% RoA Mark Signaling New Profitability Era

  • PSB profitability reaches a record high of Rs 1.5 lakh crore driven by stronger balance sheets
  • Earnings expected to grow at 14% CAGR from FY26 to FY28
  • PSBs outpaced private banks in loan growth for the first time in 15 years
  • Market cap has surged nearly 5x since FY20 while valuations remain reasonable
2 min read

Public Sector Banks reset profitability path as RoA crosses 1%: Report

PSB profitability hits a record Rs 1.5 lakh crore as RoA crosses 1%, with a 14% earnings CAGR forecasted through FY28, a Motilal Oswal report finds.

"The recovery in RoA to 1 per cent is not a one-off event but more like a homecoming for PSBs. - Motilal Oswal Report"

New Delhi, September 27

Public Sector Banks (PSBs) are entering a new phase of profitability as their return on assets (RoA) has crossed 1 per cent, supported by stronger balance sheets, better asset quality and steady credit growth, according to a recent Motilal Oswal report.

The report said the PSB sector's profitability has touched a record high of Rs 1.5 lakh crore. It added that aggregate earnings of the banks under coverage are expected to grow at a 14 per cent compound annual growth rate (CAGR) over FY26 to FY28.

"While NIM pressure may weigh on the near-term outlook, rising fee income, a gradual moderation in cost ratios, and healthy coverage levels (PCR ~79 per cent) will help to keep RoA stable at 1.0-1.1 per cent." it said.

Stronger deposit franchises, conservative credit-deposit ratios and steady traction in the Retail, Agri and MSME (RAM) segments have also supported PSBs' momentum. The report highlighted that for the first time in 15 years, PSBs outpaced private banks in loan growth during FY25, recording 12 per cent growth compared to 10 per cent by private lenders.

"PSBs' market cap has jumped nearly 5x since FY20, yet they continue to trade at reasonable valuations even as sector RoE remains stable at 18-19 per cent and RoA at ~1 per cent," the report noted

It pointed out that the recent gains are not one-time. "The recovery in RoA to 1 per cent is not a one-off event but more like a homecoming for PSBs. With margins recovering in the second half of FY26 and asset quality remaining stable, they are well poised to deliver steady returns in the coming years," the note said.

The report added that the transformation in PSBs could mean a gradual re-rating for the sector.

- ANI

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Reader Comments

P
Priya S
As someone who works in banking, this is significant. PSBs outpacing private banks in loan growth after 15 years shows the reforms are working. The 5x market cap growth since FY20 is impressive! 💪
M
Michael C
While the numbers look good, I hope this profitability doesn't come at the cost of serving rural and MSME customers. PSBs have a social responsibility that private banks don't carry.
A
Anjali F
My father retired from SBI after 35 years. He would be so happy to see this news! Public sector banks are the backbone of our economy. This recovery is truly a "homecoming" as the report says. 😊
S
Siddharth J
The 14% CAGR projection for next 3 years is promising for investors. Maybe it's time to consider PSB stocks again. The valuations are still reasonable compared to private banks.
N
Neha E
Good to see RAM segments performing well. Agriculture and MSMEs need strong banking support. Hope this profitability means better digital services and shorter queues in branches! 🙏

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