Best Undervalued Bank Stocks

Tanushree Jaiswal Tanushree Jaiswal

Last Updated: 2nd June 2025 - 04:06 pm

6 min read

The BFSI industry in India has grown 50 times over the last two decades. Growing technology, digitisation and innovative solutions to provide more customer-centric services have resulted in massive growth. The banking industry has been the backbone of the Indian market, driving the nation's financial landscape forward. 

However, due to changing landscape and market conditions, many bank stocks are undervalued and present an excellent investment opportunity.

The table below shows India's undervalued bank stocks ranked by price-to-earnings (P/E) ratio:

List of Best Undervalued Bank Stocks

As of: 20 Jun, 2025 3:59 PM (IST)

CompanyLTPPE Ratio52W High52W LowAction
Axis Bank Ltd. 1220.7 13.50 1,339.65 933.50 Invest Now
IDBI Bank Ltd. 91 12.80 107.90 65.89 Invest Now
City Union Bank Ltd. 190.83 12.60 208.40 142.91 Invest Now
Federal Bank Ltd. 207.51 12.30 217.00 172.13 Invest Now
CSB Bank Ltd. 389.45 11.40 403.20 272.75 Invest Now
Bandhan Bank Ltd. 180.05 10.60 222.31 128.16 Invest Now
Capital Small Finance Bank Ltd. 291.85 10.00 370.70 250.00 Invest Now
Central Bank of India 37.37 8.60 67.64 32.75 Invest Now
IndusInd Bank Ltd. 840.25 25.40 1,521.00 606.00 Invest Now

Axis Bank Ltd

Axis Bank is the third-largest private bank in India, offering a wide range of banking and financial services with a digital-first approach. It recently completed its Citi bank acquisition in 2024, making it the largest wealth management institute.
Axis Bank's wide network in India and good risk management make it a top choice for investors in the country's banking sector.

IDBI Bank

IDBI Bank started in 1964 as the Industrial Development Bank of India before becoming a full-fledged bank in 2004. The bank offers regular banking services to individuals and businesses across India. It provides savings accounts, loans, credit cards and investment options. The government of India and LIC own most of the bank.
IDBI Bank offers stability through government backing, with ongoing reforms strengthening its balance sheet and potential synergies with LIC ownership.

City Union Bank Ltd

City Union Bank is a trusted name in the Indian banking sector, providing a strong capital cushion. The bank has consistently shown an ability to earn high interest through loans or other deposits. Overall, City Union Bank's financial management and steady growth make it a reliable choice for investors seeking security and consistent performance.

Suryoday Small Finance Bank

Suryoday Small Finance Bank began in 2009 as a small lending organisation and became a bank in 2017. It mainly serves people and small businesses that larger banks often overlook. The bank has over 700 branches, mostly in western and southern India. 
It offers savings accounts, loans and basic banking services, focusing on helping lower-income customers. For investors, it offers exposure to India's financial inclusion sector, which has higher growth potential than traditional banks. It also offers microfinance expertise and expanding digital capabilities, driving efficiency.

Federal Bank 

Federal Bank stands out as a consistent and dependable bank. It is well known for its extensive branch network and focus on digital transformation. Federal Bank also focuses on retail and SME banking and has showcased effective asset management and low risks. Its current market value also makes it an ideal investment opportunity for long-term investors.

CSB Bank

CSB Bank, formerly Catholic Syrian Bank, is one of India's oldest private banks. Established in 1920 in Kerala, it has grown from a community bank to serve customers across India. With about 832 branches nationwide, CSB Bank offers personal and business banking services. The bank balances traditional banking values with modern technology.

In recent years, CSB Bank has worked with Fairfax India, a Canadian company, to strengthen its position. Through the Fairfax India partnership, it combines a century-old reputation with transformation potential, featuring a secure gold loan portfolio and established southern India presence as a foundation for expansion.

Bandhan Bank

Bandhan Bank is focused on providing all types of banking services to customers from different segments, practising inclusive banking. The bank has shown steady growth and strong financial performance, making it a reliable choice for investments. 
Its Net Interest Income (NII) in Q1 of FY 2025 is ₹3,005 crore, which has grown 21% from Q1 FY 2024. This growth shows the bank’s efficient lending operations and that it is earning more from the interest of its customers’ loans and deposits.

Capital Small Finance Bank

Capital Small Finance Bank started in 2016 as India's first small finance bank, though it operated as Capital Local Area Bank since 2000. It mainly serves Punjab, Haryana and nearby areas. It offers basic banking services like savings accounts and loans tailored to farmers and small businesses.

It offers exposure to less competitive rural markets, and strong regional expertise creates customer loyalty and risk assessment advantages. It is also aligned with government priorities for agricultural financing.

Central Bank of India

The Central Bank of India is a major government-owned bank founded in 1911, making it one of India's oldest banks. Sir Sorabji Pochkhanawala, an Indian businessman, started it. With over 4,500 branches across India, the Central Bank of India, owned by the government of India, offers complete banking services to individuals and businesses of all sizes.

It provides stability through government backing, benefits from financial inclusion initiatives, recent recapitalisation and digital banking investments aimed at improving long-term competitiveness.

IndusInd Bank Ltd

IndusInd Bank stands out for its strong financial performance and innovative banking solutions with a 42 million customer base. The bank's key metrics also highlight efficient asset and risk management. 
With an impressive track record, IndusInd Bank offers competitive returns to its investors. Its sustainable growth and unique services make it an attractive option.

What Are Undervalued Banking Stocks?

Undervalued banking stocks are those that are available for trade at a market price lower than their intrinsic value. This lower market value can result from several factors, such as market corrections or fluctuations, a slowdown in the market or other sector-specific reasons. However, since the market value is lower than their perceived value, they are considered a great investment opportunity for healthy financial growth in the future.

Additionally, undervalued stocks represent companies with strong financial growth potential, steady and efficient fund management and stable cash flows. This makes them an ideal choice for investors looking to invest at discounted rates and gain significant returns once the market value is restored. 

For example, let us assume that a share of one of India’s leading banks has a current market price of ₹1000 due to low stock market conditions. However, its intrinsic value (based on the company’s performance and other factors) is calculated to ₹2,000. This means that when market conditions restore, the market value can match up to be closer to its intrinsic value, giving investors who bought at the low price a significant profit. 

How to Evaluate Undervalued Banking Stocks: Key Ratios Explained

  • P/E Ratio: This is the ratio between the current share price and earnings per share. It indicates if a stock is over- or undervalued and its future growth potential.
  • P/B Ratio: It determines the current market value of a bank's share relative to its book value. If it is below 1, it suggests undervaluation of the stock.
  • Dividend Yield: It is the ratio of the amount paid for annual dividends to the share price. This helps you estimate your returns on investment.
  • EPS: This ratio indicates the bank’s profitability. It is calculated using earnings per share and a higher value means higher profit-earning potential.
  • ROE: It measures returns generated divided by shareholder equity. If the ROE value is higher, it shows efficient use of equity to earn more profits.
  • Debt-to-Equity Ratio: This ratio indicates a bank's financial stability and is calculated based on the debt and equity ratios. A lower value shows efficient debt management.
  • CASA Ratio: This ratio indicates the funds held in current and savings accounts. Since banks pay minimal interest on these funds, a higher CASA ratio means high earning potential.
  • GNPA Ratio: This represents the bank’s non-performing assets, typically overdue loans. A higher ratio indicates that a higher amount of a bank’s assets are at risk.

Benefits of Investing in Undervalued Bank Stocks in India

  • High Chances to Earn More: These stocks trade at prices lower than their actual value, offering the potential for higher returns when their market price rises.
  • Lower Entry Cost: Since these stocks are available at lower prices, your initial investment amount is reduced. 
  • Steady Income Through Dividends: Many undervalued stocks offer dividends to investors. This means you can receive regular income for long-term holdings.
  • Stronger Fundamentals: They often belong to companies with solid financials, reducing the risk of significant losses.
  • Portfolio Diversification: Investing in undervalued stocks helps spread risk across different industries and types of investments. 
  • Utilise Market Inefficiencies: You can take advantage of mispriced stock and turn market lows into opportunities to build wealth over time.
  • Ideal for Long-Term Growth: These stocks are great for patient investors aiming to grow their money steadily over time.

Things to Keep in Mind While Investing in Undervalued Private Bank Stocks in India

  • Thorough Research: Study the bank’s financials, sector trends and management quality. Stay up to date on its latest updates, news and performance insights to understand the real-time market situation.
  • Understand the Risks: Undervalued doesn’t mean risk-free. Also, consider market and sector-specific challenges before investing to avoid investing in high-risk stocks or overinvesting.
  • Evaluate Financial Ratios: Know the bank’s P/E, P/B, ROE and dividend yields. As explained earlier, these indicators help you assess the bank’s valuation and potential performance for future growth.
  • Consider Market Trends: Monitor macroeconomic indicators that directly affect bank stock prices. These include the country’s growing GDP, interest rates, exchange rates, etc.
  • Check the Liquidity: Check the stock’s trading volume to ensure ease of buying and selling. If the trading volume is low, it can be difficult to sell or buy the stock at the time and price you want.
  • Be Patient: Undervalued stocks may take time to return to their true market value and give you the returns you desire. Consider holding these stocks until the market recovers for maximum benefits.
  • Balance Risk and Reward: Invest in banks with higher earning potential than associated risks. This is best done by understanding the ratios and their interpretation of profitability and risk.

Key Takeaways on Undervalued Bank Stocks

Undervalued Private Bank Stocks in India are great investment opportunities with high growth potential. This allows you to buy the stocks at a lower value than their intrinsic market value. However, before investing, it is crucial to check important indicators, such as the P/E ratio, ROE, P/B ratio, etc., to make informed decisions.

To get started on your investment journey, opening a demat account is the first step. Open a free demat account with 5paisa in just 5 minutes and enjoy seamless access to a wide range of investment options. 

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Frequently Asked Questions

Is banking a good industry to invest in today? 

How do private banks differ from public sector banks? 

Are private bank shares more volatile than other sectors? 

What factors influence the performance of private bank stocks? 

Why do stocks become undervalued? 

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