PSU Bank index soars 31% in 2025; outperforms Nifty for 5th straight year

At 11:39 AM on Wednesday; the Nifty PSU Bank index was the top gainer among sectoral indices, up 1.8 per cent at 8,581.65, as compared to 0.5 per cent rise in the Nifty 50.

Nifty PSU Bank index movement today

 

Shares of public sector undertaking (PSU) banks were in demand, with the Nifty PSU Bank index surging nearly 2 per cent on the National Stock Exchange (NSE) in Wednesday’s trade on expectations of pick-up in credit growth.

 

At 11:39 AM; Nifty PSU Bank index, the top gainer among sectoral indices, was up 1.8 per cent at 8,581.65, as compared to 0.5 per cent rise in the Nifty 50. The PSU Bank index hit an intra-day high of 8,584.20, and was quoting close to its all-time high of 8,665.70 hit on November 26, 2025.

 

 

Punjab & Sind Bank, Indian Bank, Bank of Maharashtra, Uco Bank, Union Bank of India and Canara Bank were up in the range of 2 per cent to 4 per cent, while Bank of India, Punjab National Bank, Indian Overseas Bank, Bank of Baroda and State Bank of India were up between 1 per cent to 1.9 per cent. Of these, Canara Bank and Bank of Maharashtra hit their respective multi-year highs on the NSE.  FOLLOW STOCK MARKET UPDATES TODAY LIVE

Nifty PSU Bank index outperforms Nifty for 5th straight calendar year

 

In the calendar year 2025 (CY25), the Nifty PSU Bank index has outperformed the market by surging 31 per cent, as compared to 10.2 per cent rise in the Nifty 50. This is the fifth straight calendar year; Nifty PSU Bank index has outpaced the Nifty.

 

In CY21, Nifty PSU Bank index had rallied 44 per cent, as against 24.1 per cent rise in the Nifty 50. In CY22, PSU Bank index zoomed 71 per cent, as compared to 4.3 per cent gain in the benchmark index, followed by 32.3 per cent/20.0 per cent in CY23 and 14.5 per cent and 8.8 per cent in CY24.

Why are public sector banks (PSBs) outperforming market?

 

According to analysts, for the second half (October to March) of the financial year 2025-26 (H2FY26), profitability of schedule commercial bank’s is expected to improve, supported by festive-season demand and additionally supported by credit growth, the benefit from a lower CRR requirement, and a gradual normalisation of unsecured and microfinance institution (MFI) segment slippages.

 

Banks’ corporate lending lagged overall credit growth due to corporate deleveraging after Covid (D/E declined to ~0.7x in FY24 vs ~1x in FY19) and shift to alternate debt sources (capital markets, foreign borrowings, etc.). The interest rate gap between bond yields and benchmark rates (EBLR/MCLR) is a key factor driving this shift.  ALSO READ | Motilal Oswal sees KFin Tech as dominant, cash-generative; check outlook 

Interestingly, analysts at Ambit Capital in the banking sector report said that they observe that as the rate-gap narrows, bank corporate lending surges, which may materialize in the coming quarters. Moreover, recent policy reforms by the Reserve Bank of India (RBI) (like risk weight reduction, ease in large exposure norms) could support growth pick-up, while adoption/margin profile of acquisition finance remains a monitorable. Large banks and PSBs remain key beneficiaries of growth pick-up, while focus may remain on lower-rated accounts (AA/A) to manage margins.

 

The RBI’s recent rollout of various guidelines and draft reforms marks a structural shift towards a more accommodative environment for institutional credit. By softening the various policy restrictions, the regulator is signalling strong support for banks to re-engage with the corporate sector as a credit growth engine, the brokerage firm said.

 

PSBs continue to focus on corporate lending and dominate the market share with ~65 per cent share in Q2FY26 (calc. figure based on addition of individual bank books), of which SBI accounts for 22 per cent. Given that corporate borrowers would prefer a relatively sizable bank to accommodate their funding needs, large banks and PSU banks would remain the key beneficiaries from pick-up in corporate credit growth along with a few mid-sized banks focusing on the segment, it added.  ALSO READ | Brokerages raise target on Shriram Finance post analyst call; details here 

PSU banks have emerged as the dominant force in MSME lending, gaining market share over the past 6 to 9 months on the back of materially faster turnaround times (2–4 days), CGTMSE-backed lending, and repo-linked pricing. This has significantly narrowed the cost gap compared to private banks, Motilal Oswal Financial Services said.

 

SBI, PNB, Union Bank, and BoI are now sanctioning MSME and working-capital loans with significantly improved TAT of 2-4 days, with SBI often completing approvals within 48 hours, including WC limits. This is enabling PSU banks to capture greater market share in this segment, it added.  =========================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.