YES Securities, after examining recoveries from written-off accounts and the residual pool of such accounts across eight key PSU banks, said the dependence of profitability on these recoveries varies sharply across lenders. The report said State Bank of India (SBI) and Bank of Baroda (BoB) have low absolute dependence of return on assets on recoveries from written-off accounts, while PNB, CBK and BOM show higher dependence.
YES Securities said the dependence of RoA on recoveries from written-off accounts stands at 0.1 per cent and 0.2 per cent of average assets for SBI and BOB respectively. For Punjab National Bank (PNB), Canara Bank and Bank of Maharashtra (BoM), the figure is higher at 0.3 per cent, 0.3 per cent and 0.4 per cent respectively, underscoring the need to differentiate between PSU banks.
On relative dependence, YES Securities said BOM appears better placed than the absolute numbers suggest because it has a larger RoA buffer. Pre-tax recovery from written-off accounts as a proportion of profit before tax for BOM is the fourth lowest among the eight PSU banks at 24.5 per cent. SBIN, BoB and Indian Bank have the lowest ratios at 12.7 per cent, 18.2 per cent and 20.9 per cent respectively.
The report said that even without recoveries from written-off accounts, BoM's FY26 RoA would have remained at 1.4 per cent. SBI and Indian Bank would be close to the 1 per cent mark, while BoB would be slightly lower at about 0.9 per cent. PNB, Bank of India (BoI) and Canara Bank would be materially lower at 0.6 per cent, 0.7 per cent and 0.8 per cent respectively, YES Securities said.
YES Securities also said the stock of written-off accounts remains material for most PSU banks. As of the FY26 close, the balance of written-off accounts stands at 6.4 per cent to 7.4 per cent of the total loan book for most banks, with SBI as the exception at 3.3 per cent. The report said these balances are significant in absolute terms and are unlikely to erode suddenly.
Recoveries from written-off accounts in FY26 ranged between 5.3 per cent and 11.1 per cent of opening balances across the eight-bank universe, YES Securities said. At that pace, the residual pool will take years to run down, giving banks time to offset the erosion through gradual improvements in NIM, fee income and opex control.
On stock preferences, YES Securities said BoB (Target Price: Rs 375), SBI (Target Price: Rs 1,400), BoM (Target Price: Rs 105) and Indian Bank (Target Price: Rs 1,125) are the only PSU banks worth owning, in that order. Its broader banking sector pecking order is BoB, HDFC Bank Ltd (Target Price: Rs 1,075), Axis Bank Ltd (Target Price: Rs 1,1715), Kotak Mahindra Bank Ltd (Target Price: Rs 525), ICICI Bank (Target Price: Rs 1,850) and SBI.
The brokerage said its preferred midcap bank is BOM, its preferred smallcap bank is DCB Bank (Target Price: Rs 240), and it least prefers RBL Bank Ltd (Target Price: Rs 430) and IDFC First Bank Ltd (Target Price: Rs 95). Barring RBL Bank and IDFC First Bank, YES Securities has a 'buy' rating on all these stocks. These two have been ascribed with an 'add' tag by the YES Bank Ltd subsidiary.