SBI, PNB, BoB vs HDFC, ICICI, Axis Bank: PSU or Private – Which bank stocks are giving better returns?

Bank Stocks: Bank stocks have witnessed a shift in investor preference in recent months, with public sector banks (PSU banks) outperforming private banks.

Analysts say the trend is supported by strong earnings, improving asset quality, and a narrowing valuation gap, making PSU banks a key focus for investors tracking the sector.

Narrowing Valuation Gap

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According to Zee Business research, the valuation gap between public and private banks has been reducing steadily. In December 2025, PSU banks traded at a P/E of 8.4, which rose slightly to 8.5 in March 2026. Private banks, which earlier traded at nearly 20 times earnings, have seen a decline in their P/E multiples.

Over the past three months, PSU banks delivered returns of 3 per cent despite market volatility, while private banks fell 11 per cent. On a one-year basis, PSU banks gained over 40 per cent, compared to a modest 6 per cent rise for private banks. This data highlights a shift in market sentiment towards PSU stocks in the recent period.

Improved Asset Quality Driving PSU Rally

The rally in PSU banks has been supported by robust quarterly earnings, lower operating costs, and an improvement in asset quality.

Third-quarter results of 12 major public sector banks showed record profits, with reductions in provisioning and operating expenses. Corporate loan books also reported marked improvement, contributing to overall performance and strengthening investor confidence in PSU banks.

Mid-Cap PSU Banks Show Growth Potential

Several mid-cap PSU banks, including Canara Bank, UCO Bank, Bank of India, Indian Bank, and State Bank of India (SBI), have shown improvement in asset quality and operational efficiency. Large deposit bases, including unclaimed funds, have helped strengthen their balance sheets, providing stability and growth potential.

In comparison, private banks such as Axis Bank and IDFC Bank have shown mixed trends recently, with some concerns over asset quality. PSU banks have maintained steady performance, attracting renewed interest from investors seeking reliable returns.

PSU Bank Performance Overview

The Nifty PSU Bank index closed at 8,596.95, up 0.33 per cent on Tuesday. The index has a 52-week low of 5,904.10 and a high of 9,918.65. Over the past week, it is down 4.62 per cent, and over one month down 9.51 per cent.

However, the index gained 3.35 per cent in three months, 17.51 per cent in six months, 0.30 per cent year-to-date, 48.99 per cent in one year, 133.49 per cent in three years, and 290.94 per cent over five years.

Among major PSU banks, Punjab National Bank fell 4.75 per cent in a week and 10.31 per cent in a month, but gained 27.99 per cent over one year and 191.54 per cent over five years.

SBI dropped 4.41 per cent in a week and 12.38 per cent in a month, while rising 47.02 per cent over one year and 188.80 per cent over five years.

Union Bank of India declined 5.48 per cent in a week and 6.77 per cent in a month but gained 56.48 per cent in one year and 401 per cent over five years.

Bank of Baroda fell 3.77 per cent in a week and 6.58 per cent in a month but rose 37.70 per cent over one year and 278.49 per cent over five years.

This shows that while PSU banks may face short-term volatility, they have delivered strong long-term growth.

Private Bank Performance Overview

The Nifty Private Bank index closed at 26,066.20, up 0.93 per cent on Tuesday. It has a 52-week low of 24,399.85 and a high of 29,748.45.

Over the past week, it fell 3.94 per cent, and over one month dropped 10.21 per cent. Over three months, it declined 8.02 per cent, six months down 3.56 per cent, and year-to-date down 9.45 per cent.

One-year returns stand at 7.80 per cent, three-year gains at 29.92 per cent, and five-year returns at 42 per cent.

Among major private banks, HDFC Bank declined 0.78 per cent in a week and 8.96 per cent in a month, with a year-to-date loss of 14.97 per cent and a one-year fall of 1.45 per cent.

ICICI Bank fell 1.90 per cent in a week and 8.56 per cent in a month, but rose 1.42 per cent over one year and 53.90 per cent in three years.

Axis Bank dropped 6.59 per cent in a week and 9.52 per cent in a month but gained 18.74 per cent in one year.

Kotak Mahindra Bank fell 4.56 per cent in a week and 11.89 per cent in a month, down 6.18 per cent in one year, with five-year returns nearly flat at 0.09 per cent.

Overall, private banks have underperformed PSU banks over the short term and delivered modest long-term returns, with significant variation among individual stocks.

PSU vs Private Banks

The Nifty PSU Bank index has outperformed the Nifty Private Bank index over the past year and longer-term periods, despite short-term volatility.

The PSU Bank index is up 48.99 per cent in one year and 290.94 per cent over five years, while the Private Bank index closed at 26,066.20, rising 7.80 per cent in one year and 42 per cent over five years.

Brokerages Maintain Positive Views

Brokerages continue to maintain positive ratings on select private and public banks. HDFC Bank is trading at Rs 845.85. CLSA maintains an Accumulate rating with a target of Rs 1,200, implying a potential upside of 42 per cent. CLSA expects HDFC’s core PPOP to grow at 18 per cent CAGR over FY26-28 versus 12 per cent over FY24-26.

ICICI Bank is trading at Rs 1,288.95, with CLSA maintaining Accumulate and a target of Rs 1,700, indicating potential upside of 32 per cent. Retail loan growth pickup and lower credit costs are expected to support rerating.

Axis Bank trades at Rs 1,258. Jefferies maintains Buy with a target of Rs 1,550, implying 23 per cent upside. UBS and Jefferies highlighted the bank’s strong capital position and resilience to macroeconomic risks.

SBI is at Rs 1,064, with mixed brokerage views – Bernstein maintains Market Perform with a target of Rs 1,100, UBS Neutral at Rs 1,120, JP Morgan Overweight at Rs 1,250, and Citi Buy at Rs 1,265. Upside ranges from 3 per cent to 19 per cent.