Nifty PSU Bank index rises 2%; nears 52-week high. What's driving PSBs?

PSU Bank stocks rally up to 4%

Shares of public sector banks (PSBs) continued their upward movement, with the Nifty PSU Bank index gaining 2 per cent on the National Stock Exchange (NSE) in Wednesday’s intra-day trade.

 

At 10:55 AM; Nifty PSU Bank index was up 1.4 per cent, as compared to 0.32 per cent rise in Nifty 50. The PSU Bank index hit an intra-day high of 7,260.70, and was trading close to its 52-week high of 7,304.80 touched on July 17, 2025. Thus far in the month of September, Nifty PSU Bank index has outperformed by surging 7.5 per cent, as compared to 3.7 per cent rise in the Nifty 50.

 

 

State Bank of India (SBI), Bank of Maharashtra, Central Bank of India, Union Bank of India, Indian Bank and Canara Bank were up in the range of 2 per cent to 4 per cent on the NSE in intra-day trade.

 

Shares of Indian Bank hit a new high of ₹709.80 on the NSE. SBI, Canara Bank and Punjab National Bank were trading close to their respective 52-week highs as well. 

Over the past 12 months, the Nifty Financials and Nifty Bank Index have outperformed the Nifty 50 by 11 per cent and 7 per cent, respectively. However, banking stocks continue to show divergence, with both Private and PSU banking segments delivering mixed returns. 

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Brokerage firm Motilal Oswal Financial Services (MOFSL) expects the performance of banking stocks to improve with an impending recovery in earnings. Additionally, management commentary is turning constructive. This, coupled with a demand uptick led by the GST rate cut and potential resolution on tariffs (as negotiations have resumed), is expected to boost investor sentiment.

 

According to MOFSL, the margins for PSBs contracted due to their quicker loan repricing cycle; however, robust treasury gains helped limit any material dent to earnings. Slippages remained well-contained for most PSBs, supported by minimal exposure to unsecured lending. 

 

The GNPA ratio was stable or lower across the board, with PCR levels healthy at ~75-90 per cent. The normalization of credit costs over the coming years, along with the transition to ECL, will be closely monitored, the brokerage firm said in its financial sector report. MOFSL estimates PSB earnings growth to sustain at a 14 per cent compound annual growth rate (CAGR) over FY26-28 vs 38 per cent CAGR over FY22-25. SBI, Canara Bank, and Indian Bank are preferred buys.

 

Meanwhile, ICICI Securities anticipates reduction in interest rate, GST reforms and festive season to revive credit off-take while repricing of deposits and benefit of CRR cut is expected to aid uptick in margins. On asset quality front, few segments including unsecured retail witnessed slippages, however, credit cost remains at acceptable level, brokerage firm said. SBI is top pick of the brokerage house.

 

Meanwhile, on August 14, 2025, S&P Global Ratings upgraded the issuer credit ratings of 10 financial institutions including SBI, Union Bank of India and Indian Bank by one notch each due to likely improvement in their risk adjusted capital (RAC) ratios. The gains will be driven by fresh capital raising or benefits from lower risk weights due to a reduction in economic risk and the sovereign upgrade, the global rating agency said.

 

In S&P Global Ratings view, some of the factors benefiting the sovereign's creditworthiness will have a positive effect on operating conditions for financial institutions in India. In particular, infrastructure spending will likely pave the way for robust economic growth, which will support banks' asset quality.

 

The asset quality of Indian banks will remain healthy. This reflects structural improvements in operating conditions and good economic prospects. The rating agency believes underwriting standards for secured retail loans are healthy in the Indian banking system, and delinquencies will remain manageable. Tightening regulations and stricter guardrails in microfinance should also contain asset-quality strains.