SBI, Indian Bank, MahaBank, BOB, Union Bank, PNB: PSU banks crash up 7%; should you buy?

State-run private lenders were hammered hard on Wednesday as traders booked profit after the government ruled out the merger of PSU banks and expectations of increasing the foreign direct investment (FDI) limit in these lenders to 49 per cent from current levels of 20 per cent.

Presently, there is no proposal on merger or consolidation of Public Sector Banks (PSBs) that is under consideration of the Government," said Minister of State for Finance Pankaj Chaudhary in a written reply in the Lok Sabha. In another response, he said that the FDI limit in PSBs and private sector banks is 20 per cent and 74 per cent, respectively,

Following the news, PSU Bank index dropped nearly 3.2 per cent on Wednesday, with a number of PSU counters crashing up to 7 per cent during the trading session. PSU Bank index had surged about 57 per cent from its 52-week lows before profit booking soured the sentiments as traders took money off the table. All constituents of the PSU Bank index were trading in red.

Indian Bank led the laggards, crashing nearly 7 per cent to Rs 804.15 on Wednesday. The lender has soared more than 57 per cent on the year-to-date basis so far. It was followed by Punjab National Bank which crumbled nearly 5 per cent to Rs 119.55, even as the stock jumped nearly 17 per cent in 2025 so far.

Canara Bank, after rising 47 per cent on YTD basis, dropped 4.4 per cent. Similarly, Bank of India, which surged 38 per cent in 2025, was seen 4 per cent down at Rs 140.27. Bank of Baroda, Central Bank of India, Punjab & Sind Bank, UCO Bank and Union Bank of India dropped 2-3 per cent each. State Bank of India (SBI), Bank of Maharashtra and Indian Overseas Bank cracked up to 2 per cent each.

"We most prefer Bank of Baroda (BOB) among PSU banks and also in our overall banking coverage," said YES Securities in its recent report with a 'buy' rating and a target price of Rs 400. It also has a 'buy' rating on SBI and Indian Banks with targets of Rs 1,225 and Rs 1,075, respectively.

Commenting on Bank of Maharashtra, HDFC Securities raised its FY26-FY27E estimates and factor in additional provisioning impact of Rs 500 crore for FY28E. It gave a target price of Rs 70 with a 'buy' tag. Geojit Investments also has the same rating on the stock with a target price of Rs 68.

Geojit is also positive on Union Bank of India as it gave it a buy' rating with a target price of Rs 503. "Going forward, the bank aims to scale credit growth to 9-10 per cent YoY, with the improving loan mix also expected to support NIM expansion toward 2.7 per cent. It is currently trading at a P/BV of 0.9x with a strong RoA and RoE of 1.1 per cent and 13 per cent as of FY27E, respectively, it said.

Axis Securities has kept State Bank of India as its top picks for December and has given it a target price of Rs 1,135. SBI is also among the top banking picks of Motilal Oswal Financial Services even as it believes that PSU Banks are trading at premium valuations.

Antique Stock Broking has a 'buy' rating on Bank of Baroda (Target Price: Rs 325), Canara Bank (Target Price: Rs 170), State Bank of India (Target Price: Rs 1,105) and Union Bank of India (Target Price: Rs 180). It has a 'hold' rating for Punjab National Bank with a target price of Rs 135. Antique has cited SBI and Union Bank as its top picks from the PSU banking space.

Elara Capital has a 'buy' rating on Bank of Baroda with a target price of Rs 326 and an 'accumulate' rating on PNB and SBI with target price of Rs 122 and 1,050, respectively. It has given 'reduce' ratings for Canara Bank and Indian Bank Rs 130 and Rs 730, respectively.