UBS Initiates Coverage On PNB, Canara Bank, And Union Bank; Mixed Outlook Across PSU Lenders

UBS has initiated coverage on three major public sector banks, Punjab National Bank, Canara Bank, and Union Bank.

The brokerage has assigned a ‘Buy' rating to Canara Bank with a target price of rs 150, citing a steady earnings profile and stable business metrics.

The brokerage expects return on assets and returns on equity to remain healthy at 1% and 16%, respectively, over FY26-28.

“We expect loan growth to remain steady at a 12% CAGR over FY26-28, driven by the RAM (retail, agri and micro, small & medium enterprises [MSME]) segment which contributes 57% of total loans as on 1QFY26,” the brokerage noted.

It further added, “a higher liquidity coverage ratio (LCR) of 144%, coupled with a lower LDR of 73% will likely support loan growth, in our view.”

In contrast, PNB and Union Bank have been rated ‘Neutral', with target prices of Rs 120 and Rs 150, respectively. UBS noted that PNB's return ratios are likely to remain low, with key metrics showing only moderate improvement. While business growth is expected to be steady, near-term NIMs could face pressure, and credit costs may inch up from FY25, leading to a decline in ROA.

For Union Bank, UBS flagged a modest growth outlook, citing lower-than-peer expansion and limited upside in ROA. Loan growth may remain subdued, although margins are expected to stay steady. Credit costs are likely to remain stable, but ROA is projected to hover around 1%, down from 1.2% in FY25.

This comes after, RBI during its MPC meet address proposed a series of measures to improve credit flow, ease costs and expand lending flexibility. The central bank said that a risk-based deposit insurance premium framework will be introduced, lowering costs for higher-rated banks.