Whalesbook
PSU Banks Indian Overseas Bank and Bank of Maharashtra Shine on Strong Q3 Results
Indian Overseas Bank (IOB) and Bank of Maharashtra (BoM) reported strong financial results for the December 2025 quarter, bolstering the outlook for midcap public sector undertakings (PSUs) in India's banking sector. The banks showcased significant loan growth and improved profitability, drawing investor attention to their operational metrics and valuations.
Financial Performance Highlights
Net Interest Margins (NIMs), a key profitability indicator, stood at 3.32% for Chennai-based IOB and 3.88% for Pune-based BoM in the December 2025 quarter. These figures reflect some pressure from the Reserve Bank of India's repo rate cuts in early December 2025, which aim to reduce lending rates across the system. However, both banks are navigating these conditions effectively.
Loan Book Expansion and Asset Quality
Growth in advances was a standout performer. IOB's loan book expanded by 18.8% year-on-year to ₹2.91 lakh crore in Q3FY26, propelled by an impressive 43% surge in retail advances and 34% growth in agriculture loans. Bank of Maharashtra saw its advances grow by nearly 20% to ₹2.69 lakh crore, benefiting from a 36.4% rise in retail loans.
Asset quality remained a strong point for both institutions. IOB reported a Net Non-Performing Asset (NPA) ratio of 0.24%, a marked improvement from 0.42% a year prior. Bank of Maharashtra's Net NPA stood at a robust 0.15%, down from 0.2% year-on-year. Retail loans, known for their higher yields, help banks manage NIM pressures and maintain asset quality.
Profitability and Operational Efficiency
The improved loan book and controlled asset quality translated into significant profit growth. IOB's standalone net profit surged 56.4% year-on-year to ₹1,365.1 crore, aided by a 23% drop in provisions for NPAs. Bank of Maharashtra's net profit rose 26.5% to ₹1,779.3 crore, despite an increase in provisions, thanks to strong loan book expansion.
Efficiency metrics also showed strength. Indian Overseas Bank recorded an annualized Return on Assets (RoA) of 1.28%, while Bank of Maharashtra achieved an RoA of 1.86% in the December 2025 quarter. These figures indicate effective utilization of assets to generate earnings.
Valuation and Investor Outlook
Valuations present an attractive proposition for investors. IOB trades at a standalone Price-to-Earnings (P/E) ratio of 14.6, while Bank of Maharashtra trades at a lower 7.8 P/E. For comparison, the largest PSU bank, State Bank of India (SBI), trades at a P/E of 13.3. In terms of Price-to-Book Value (P/B), IOB trades at 1.9 times, BoM at 1.5 times, and SBI at 1.8 times. IOB's stock, hovering near its 52-week low, is also awaiting details on its ₹4,000 crore Qualified Institutional Placement (QIP) to reduce government stake. Investors are watching these smaller PSU banks closely for continued growth and operational efficiency in the coming quarters.