Nifty PSU Bank index soars 2%, hits new high; PNB, Canara, UBI shares up 3%

Thus far in the current week, the PSU Bank index has rallied 5.7 per cent, as against 0.74 per cent gain in the Nifty 50.

Nifty PSU Bank index movement today

 

Public sector undertaking (PSU) lenders continued their upward movement, with the Nifty PSU Bank index hitting a new high of 9,691, soaring 2 per cent on the National Stock Exchange (NSE) in Friday’s intra-day trade. 

At 12:37 PM; the Nifty PSU Bank index, the top gainer among sectoral indices, was up 1.7 per cent, as compared to 0.74 per cent rise in the Nifty 50. Thus far in the current week, the PSU Bank index has rallied 5.7 per cent, as against 0.74 per cent gain in the benchmark index. Further, in the past two months, the Nifty PSU Bank index has soared 16 per cent, as compared to 1 per cent decline in the Nifty 50. 

 

Punjab National Bank (PNB), Canara Bank and Union Bank of India (UBI) were up 3 per cent each in intra-day trade. Indian Bank, Bank of India, Bank of Baroda (BOB), Bank of Maharashtra, Indian Overseas Bank, Uco Bank and State Bank of India (SBI) were up between 1 per cent and 2 per cent.

What’s driving PSU banks?

Prospective mergers among the public sector banks (PSBs) have recently become a prominent topic. In the earlier round, a merger was arguably essential to revive the target PSU bank, as it was likely burdened by non-performing assets (NPA) and poor profitability. Presently, smaller banks stand on a strong footing, on both balance sheet and profitability, according to ICICI Securities. 

Meanwhile, PSBs outperformed Private Sector Banks (PVBs) in the December 2025 quarter (Q3FY26), with net profit expanding by a robust 17.5 per cent year-on-year (YoY) to ₹0.55 trillion, compared to a modest 3.2 per cent growth recorded by PVBs, whose net profit stood at ₹0.45 trillion. This growth in PSBs was driven by higher treasury gains, largely concentrated in two large PSBs, and amplified by a low base in the corresponding quarter last year (base effect) alongside improved recoveries from technically written-off accounts and broad-based credit expansion across segments, according to CareEdge Ratings. 

PSBs’ RoA improved by seven bps on a YoY basis at 1.18 per cent in Q3FY26, attributed to gains in non-interest income, which offset rising provisions and elevated operating expenses. 

According to Saurabh Bhalerao, Associate Director, CareEdge Ratings, “PSBs continued to outperform PVBs during the period, aided by relatively lower Credit-to-Deposit (CD) ratios, which provided incremental headroom and supported balance sheet expansion. System-wide capitalisation remained robust, with banks maintaining buffers comfortably above regulatory thresholds. Capital strength was reinforced by sustained bond issuances by select banks, ensuring adequate support for credit growth.”  ALSO READ | Power stocks in demand: ABB, Siemens, Hitachi, Torrent soar up to 8% 

Analysts at PL Capital said, PSU banks under its coverage (SBI, UBI, BOB, Canara) have re-rated by 45-122 per cent from the financial year 2023-23 (FY23) till date, driven by superior loan growth and a sharp decline in credit costs compared to PVB.  

However, the brokerage firm does not expect further material re-ratings in PSU given its estimates over FY26-28E are factoring a slightly higher credit growth for private banks (PVB) compared to PSU due to moderation in credit accretion for PSU. If PSU Banks sustain the current run-rate of credit growth, it may be at the cost of margins, which may expose NII to downside risks. 

Analysts said they would prefer banks that have (1) a relatively higher liquidity coverage ratio (LCR), (2) are comfortable on LDR, (3) can grow faster than system without diluting NIM, (4) have a superior NIM profile, (5) have strong capital adequacy, and (6) may see a better core PAT CAGR. The brokerage firm likes SBI given its ability to grow faster than the system without compromising on margins and solid deposit franchise.  =========================================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.