PSU Bank index outshines Nifty for 6th straight month; up 41% since Sep-25

Thus far in the month of February 2026, the Nifty PSU Bank index has rallied 5.5 per cent, as compared to 2 per cent rise in the benchmark Nifty 50.

Nifty PSU Bank index today

 

Shares of public sector banks (PSBs) continued their upward march, with the Nifty PSU Bank index hitting a new high at 9,517.70, surging over 2 per cent on the National Stock Exchange (NSE) in Tuesday’s intra-day trade. In the past three trading days, the PSU Bank index has rallied 4 per cent.

 

Bank of Baroda,  Punjab National Bank, Union Bank of India, Uco Bank, Bank of Maharashtra, Indian Overseas Bank and Central Bank of India were up in the range of 3 per cent to 4 per cent today. 

 

State Bank of India (SBI) hit a new high of ₹1,225.50, and was up 1.4 per cent in intra-day trade. In the past seven trading days, the stock price of the PSU banking giant has surged 15 per cent after the state-run lender reported strong December 2025 quarter (Q3FY26) earnings.

 

 

At 11:57 AM; the Nifty PSU Bank index was up 2.3 per cent, as compared to 0.20 per cent rise in the Nifty 50. 

 

Nifty PSU Bank index outperforms Nifty 50 for 6th straight month

 

The Nifty PSU Bank index has outperformed the Nifty 50 for the sixth straight month. Thus far in the month of February 2026, the PSU Bank index has rallied 5.5 per cent, as compared to 2 per cent rise in the benchmark index.

 

In the previous month, January 2026, Nifty PSU Bank index had soared 5.7 per cent, as against 3 per cent decline in the Nifty 50. In the month of September 2025, PSU Bank index had zoomed 11.4 per cent, as compared to 0.75 per cent gain in the Nifty 50. 

 

 

Since September 2025, Nifty PSU Bank index has zoomed 41 per cent, as against 5 per cent rise in the Nifty 50.

 

What’s driving PSU banks' stock price today?

 

According to media reports, the Reserve Bank of India (RBI’s) draft norms to curb mis-selling of financial products are expected to weigh more on private sector banks, which derive a higher share of fee income from insurance distribution. Insurance income accounted for ~10 per cent of other income for the top five private banks in FY25 (up from 8.2 per cent in FY19), compared with below 4 per cent for leading PSU banks. 

 

The tighter framework could moderate bancassurance-led fee growth, particularly for private banks where insurance income typically contributes 6–16 per cent of other income, versus 2–5 per cent for PSU lenders, the report suggested.

 

Meanwhile, investors have seen a change of fortune for PSBs in the last 5–6 years in terms of profitability, balance sheet strength, business growth, market share, and valuations. A lot of this has been due to sectoral tailwinds on corporate asset quality, institutional reforms by the regulators/government and deep capital infusion. The importance of governance revamp cannot be under emphasised in the robust turnaround of the PSBs.

 

PSB merger doing the rounds

 

Prospective mergers among PSU 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, said ICICI Securities in a banking sector report. 

 

Assuming core banking system (CBS) compatibility is respected, the rank uptick for SBI and other banks may not be significant, while Canara and UCO may not be party. There appears to be no explicit linkage of the size of the bank on funding, cost to assets, CASA and directed lending. India has formed specialised institutions for project lending as well.

 

That said, mergers could make banks more prepared on IT transformation and tech investment, alongside more efficient supervision from DFS; albeit, potentially restricting near-term growth for the merged entity, the report stated.

 

Analysts believe fewer PSU banks could further make the engagement more effective. The impending threat of merger could also push the smaller banks to be more agile, nimble and create a further niche in their core products/geographies. In a way, the idea of a merger could be as powerful as the merger itself, bringing in efficiency in the broader banking system. 

PSU Banks' Q3FY26 review

 

In the December 2025 quarter (Q3FY26), PSBs sustained superior loan growth at >14.5 per cent YoY led by SME, retail, and supported by wholesale. Private banks’ loan growth inched up YoY but remained relatively subdued at <12 per cent YoY. On a sequential basis, PSU banks grew ~5.5 per cent QoQ as compared to ~3.5 per cent for privates.

 

PSBs saw negligible net slippages of 0.1 per cent, while private banks saw net slippages rising marginally to 0.9 per cent. Net of TWO recoveries, slippages were negative 0.2 per cent for PSBs. Overall gross NPA continued to sustain the improving trajectory. PSBs’ GNPA improved at an accelerated pace to 2.1 per cent vs. 2.3 per cent QoQ and 2.9 per cent YoY. Interestingly, net NPA ratio for PSBs is now better than private banks on an aggregate basis, ICICI Securities report suggested.

 

While the final rules on expected credit loss (ECL) transition are yet to be released, the transition is likely to be smooth for most banks. Some PSU banks have estimated ECL impact at <1 per cent of loans (~4-8 per cent of NW) while a few have kept the range wider at 1-2 per cent of loans (~6-11 per cent of NW).  =======================================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.