Government owned banking shares are showing some signs of life. The flurry of activity and the seriousness among these banks to clean-up the NPA mess, may result in some of these banks being worthy investments.

However, the bets can be placed on the larger government owned banks like PNB, Bank of Baroda or even a Union Bank of India.

Take the case of Punjab National Bank. In the quarter ending June 30, 2018, the bank made a solid recovery of Rs 8,445 crores and has a target to recover amounts of almost Rs 20,000 crores during the first half of the current finacial year.

The bank is likely to sell its stake in its housing finance arm, as well as the insurance arm to shore up its capital. We believe that once the provisioning in the Nirav Modi case is over (by the end of Dec), the bank should be back on track.

Bank of Baroda is another stock that one could consider. The bank's financial performance was pretty reasonable for the quarter ending June 30, 2018 and again there is a lot of good that is happening on the recovery side.

The bank is now looking at selling its Ghana, Trinidad and Tobago units, and according to reports this is the first sale from any PSU. However, the shares of Bank of Baroda are probably factoring a lot of the good, when compared to PNB and hence the latter could be a better bet.

Union Bank surprisingly reported a net profit for the quarter ending June 30, 2018. It was among the few government banks that did so. The stock at Rs 85 has little downside risk.

We strongly believe that in the next 1 year, the bank could emerge much stronger than they are. Most of them have learnt a lesson and lending norms are going to be severe henceforth. In fact, there are likely to be multiple levels of scrutiny from these banks.

While most private sector banks have done well, these are reflected in their share price. Government owned bank shares have not peaked and some of them like PNB are excellent franchisee with value in subsidiaries.

Hence, it maybe a good time to buy into some of these stocks at lower levels. In fact even at these levels some of these stocks are not very expensive. Buy, if you are ready to hold these shares for the next two years or so.