Nifty PSU Bank index rallies nearly 4%, hits new high; what's driving PSBs?

Nifty PSU Bank index movement today

 

Shares of public sector banks (PSBs) were in demand, with the Nifty PSU Bank index hitting a new high, as it rallied nearly 4 per cent on the National Stock Exchange (NSE) in Monday’s intra-day trade. 

 

The sharp rally in the PSU Bank index was largely led by the sector giant State Bank of India (SBI), which reported better-than-expected earnings for the quarter ended December 2025 (Q3FY26). SBI’s management revised credit growth guidance for FY26 upward to 13–15 per cent and maintained exit net interest margin (NIM) guidance of 3 per cent.

 

 

The Nifty PSU Bank index surged 3.6 per cent to hit a new high of 9,193 in intra-day deals on Monday. In doing so, the index surpassed its previous high of 9,175.55 touched on January 29, 2026.

 

In the past one month, the Nifty PSU Bank index has outperformed the market by surging 7 per cent, as against 0.5 per cent gain in the Nifty 50. Further, in the past five months, PSU Bank index has zoomed 34 per cent, as compared to 3.8 per cent rise in the benchmark index.

 

At 09:30 AM; Nifty PSU Bank index, the top gainer among sectoral indices, was up 3.4 per cent, as compared to 0.5 per cent rise in the Nifty 50.  CATCH STOCK MARKET UPDATES TODAY LIVE 

Among individual stocks, SBI rallied 7 per cent to hit a new high at ₹1,137 on the NSE in intra-day trade. Indian Bank surged 4 per cent to ₹904.85, followed by Bank of India up 3.5 per cent to ₹169.38, Bank of Maharashtra (3 per cent at ₹67.44) and Central Bank of India (3 per cent at ₹37.95). Union Bank of India, Bank of Baroda, Uco Bank, Canara Bank, Indian Overseas Bank and Punjab National Bank were up 2 per cent each.

What’s driving PSBs on Monday?

 

SBI reported a better than expected 25 per cent year-on-year (YoY) growth in profit after tax at ₹21,028 crore for Q3FY26 - its highest-ever quarterly profit - due to higher other income and lower-than-expected provisions. The bank received dividend income of ₹2,200 crore from SBI Mutual Fund; despite netting off the one-off, performance remained strong across all fronts.

 

The bank’s net interest income (NII) grew 9 per cent YoY/5 per cent QoQ to ₹45,190 crore. NIM stood at 2.99 per cent (2bp QoQ improvement), with domestic NIMs improving 3bp QoQ to 3.12 per cent. The bank said its NIM will continue to be above 3 per cent going forward. Loan book grew 15.6 per cent YoY/6.1 per cent QoQ, while deposits grew 9 per cent YoY/2 per cent QoQ. CASA ratio moderated 50bp QoQ to 39.1 per cent.

 

SBI reported a strong all-round performance, led by robust business growth, margin expansion and healthy asset quality. Credit growth was healthy at 15.6 per cent YoY, while a robust credit pipeline is expected to support a healthy outlook going forward. Management raised FY26 credit growth guidance to 13-15 per cent (vs. 12-14 per cent earlier). Asset quality improved further, with slippages moderating and credit cost staying benign at 29bp. The bank sounded confident about the overall credit environment, according to analysts at Motilal Oswal Financial Services.

 

The brokerage firm raised its earnings estimates by 3 per cent/4.3 per cent for FY27/28E and estimates FY27E RoA/RoE at 1.1 per cent/15.9 per cent. Analysts reiterated 'BUY' rating on SBI with a revised target price of ₹1,300 (1.4x FY28E ABV + ₹354 for subs).

 

Strong and diversified growth, resilient margins despite deposit pressure, industry-leading asset quality, and large provision buffers underpin SBI’s improved earnings visibility and balance-sheet strength. Sustained ~1 per cent plus ROA and healthy mid-teen ROE profile warrant premium valuation vs. historical PSU bank valuations, said analysts at JM Financial Institutional Securities.  ALSO READ | SBI shares hit record high after Q3; brokerages raise target up to ₹1,300 

The brokerage firm believes the stable margins, efficient cost management, and benign credit costs are expected to drive consistent profitability, maintaining avg. RoA/RoE of ~1.0 per cent/15 per cent over FY27-28E. It maintains 'BUY' rating with a revised target price of ₹1,250, valuing the core bank at 1.4x FY28E standalone BVPS.

 

Meanwhile, the Reserve Bank of India (RBI) noted that GDP growth was improving and the drag of external demand should be at least partially mitigated by the new trade deals. They note a revival in manufacturing and find agriculture and corporate sector activity supportive too. They expect urban consumption to remain resilient on the back of policy measures and infra spending to boost investment activity. 

 

With the introduction of new GDP and CPI series, RBI projections for the same only extended for two quarters. It raised its GDP forecast for FY26 to 7.4 per cent (7.3 per cent earlier) and the forecast for Q1FY27/ Q2FY27 to 6.9 per cent/7.0 per cent, a 20bps increase in both cases, analysts at BNP Paribas India said in the sector report.

 

Meanwhile, every incremental rate cut has a 4-5bps/c2-3 per cent impact on NIM/earnings for large banks, and the brokerage firm said it had indeed been expecting a final 25bps rate cut RBI policy meeting last week. The absence of one implies a similar and opposite positive sensitivity to margins for most banks, BNP Paribas India said.    =================================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.