'Moment of truth': BNP Paribas on PSU bank stocks amid Maharashtra farm loan waiver, 3 top picks
BNP Paribas said the development could potentially serve as a “moment of truth and remembrance” regarding factors related to the PSU bank business model that markets may have conveniently ignored.
- Mar 10, 2026,
- Updated Mar 10, 2026 5:15 PM IST
BNP Paribas, in a fresh note on the banking sector, said the Maharashtra Budget 2026-27 announcement of a crop loan waiver of up to Rs 2 lakh for farmers appeared to have precipitated concerns in the market. The foreign brokerage said it preferred private sector lenders such as HDFC Bank Ltd, Axis Bank Ltd and ICICI Bank Ltd to PSU banks, as the latter are more exposed to agricultural loans, though it added that the overall impact on PSU banks, if any, would likely remain limited.
BNP Paribas said the development could potentially serve as a “moment of truth and remembrance” regarding certain factors related to the PSU bank business model that markets may have conveniently forgotten or ignored.
"Simply put, the business model is more vulnerable to ‘social costs’ than equivalent private businesses. The fact that this risk comes married to low RoA and high leverage makes the impact of such changes more potent as sources of earnings volatility. The recognition of this relative hierarchy of inherent fragility of RoEs between our preferred large private banks and PSUs is key to our sector preferences," it said.
Data showed PSUs are more exposed to agri-loans than private banks. Canara Bank's agri-sector advances are 24.1 per cent of its total domestic advances. For Union Bank and Bank of India (BOI), they are high at 17.9 per cent and 17.6 per cent. Bank of Baroda and Punjab National Bank (16.4 per cent each) also have high exposure to agri-loans.
BNP Paribas said there is a direct fear of immediate provisioning impact but felt even if a few other states follow suit, the impact on incremental provisioning is limited as crop loans typically have poor repayment track records and the NPV sacrifice may well be smaller than credit costs on a business-as-usual basis.
BNP Paribas said the fact that private banks now mostly trade below their long-term averages while PSUs are well above Bloomberg consensus estimates, only amplified its preference.
The foreign brokerage is positive on HDFC Bank, ICICI Bank and Axis Bank in that pecking order. It is 'Neutral' on State Bank of India (SBI).
BNP Paribas, in a fresh note on the banking sector, said the Maharashtra Budget 2026-27 announcement of a crop loan waiver of up to Rs 2 lakh for farmers appeared to have precipitated concerns in the market. The foreign brokerage said it preferred private sector lenders such as HDFC Bank Ltd, Axis Bank Ltd and ICICI Bank Ltd to PSU banks, as the latter are more exposed to agricultural loans, though it added that the overall impact on PSU banks, if any, would likely remain limited.
BNP Paribas said the development could potentially serve as a “moment of truth and remembrance” regarding certain factors related to the PSU bank business model that markets may have conveniently forgotten or ignored.
"Simply put, the business model is more vulnerable to ‘social costs’ than equivalent private businesses. The fact that this risk comes married to low RoA and high leverage makes the impact of such changes more potent as sources of earnings volatility. The recognition of this relative hierarchy of inherent fragility of RoEs between our preferred large private banks and PSUs is key to our sector preferences," it said.
Data showed PSUs are more exposed to agri-loans than private banks. Canara Bank's agri-sector advances are 24.1 per cent of its total domestic advances. For Union Bank and Bank of India (BOI), they are high at 17.9 per cent and 17.6 per cent. Bank of Baroda and Punjab National Bank (16.4 per cent each) also have high exposure to agri-loans.
BNP Paribas said there is a direct fear of immediate provisioning impact but felt even if a few other states follow suit, the impact on incremental provisioning is limited as crop loans typically have poor repayment track records and the NPV sacrifice may well be smaller than credit costs on a business-as-usual basis.
BNP Paribas said the fact that private banks now mostly trade below their long-term averages while PSUs are well above Bloomberg consensus estimates, only amplified its preference.
The foreign brokerage is positive on HDFC Bank, ICICI Bank and Axis Bank in that pecking order. It is 'Neutral' on State Bank of India (SBI).