SBI, Indian, Union Bank gain up to 4%; what's driving PSU Banks today

PSU Bank shares in focus: At 10:37 AM; Nifty PSU Bank index was the top gainer among sectoral indices, up 2.4 per cent, as compared to 0.3 per cent decline in the Nifty 50.

PSU Banks share price: Shares of public sector banks (PSBs) were in focus on the bourses with the Nifty PSU Bank index surging over 2 per cent on the National Stock Exchange (NSE) in Monday's intraday trade in an otherwise subdued market.

 

State Bank of India (SBI), Indian Bank, Bank of Maharashtra, Union Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank, UCO Bank, Bank of India and Indian Overseas Bank were up in the range of 2 per cent to 4 per cent. 

 

At 10:37 AM; Nifty PSU Bank index, the top gainer among sectoral indices, was up 2.4 per cent, as compared to 0.3 per cent decline in the Nifty 50. Nifty Bank, Nifty Private Bank and Nifty Financial index were also trading lower on the NSE.

 

What’s driving PSU banks today?

 

According to a PTI report, Finance Minister Nirmala Sitharaman on Friday asked PSBs to take advantage of Reserve Bank's jumbo 50 basis points rate cut to increase lending toward productive sectors of the economy. 

 

During a meeting to review financial performance of PSBs, Sitharaman asked their chiefs to maintain profitability momentum in FY26. The sector continues to show improved asset quality, with net NPA falling to 0.52 per cent as of March FY25. READ MORE

 

Meanwhile, another a PTI report suggested that the finance ministry has asked PSBs to look at monetising their investment in subsidiaries by listing them at bourses after further scaling up operations so that they realise good return.  The country's biggest lender SBI may look at listing SBI General Insurance and SBI Payment Services in the future after they scale up their operations.

 

Banking Sector outlook

 

The Indian commercial banking sector exhibited sustained strength during 2023-24 and H1 2024-25. However, credit growth slowed down in H2 due to weak economic activities led by global uncertainty. During 2024-25, ASCB’s credit growth (YoY) moderated to 11.0 per cent compared to last year growth of 20.2 per cent, on account of unfavourable base effect, which offset the positive momentum.

 

The future outlook is supported by sustained demand from rural areas, an anticipated revival in urban consumption and expected recovery of fixed capital formation supported by increased government capital expenditure and expected normal monsoon. Despite the impact of global shocks on goods exports, service exports would continue to be buoyant, SBI said in its FY25 annual report.

 

The macros in FY2026 are expected to proceed along expected lines. Inflation is expected to stay within the RBIs range for FY2026 with influence of supply side factors weaning. On the policy front, both fiscal and monetary policy responses are largely anticipated. The fiscal consolidation remains credible, SBI said.

 

Elara Capital view on PSU Banks

 

The current cycle mirrors some patterns but stands out for its pre-emptive nature amid strong liquidity. With front-loaded policy easing, robust capital buffers, and improving credit visibility, early signs of a revival are in place - not just in Financials but also in rate sensitive sectors, such as auto and realty.

 

Historically, PSU banks underperformed (6.9 per cent PAT, 12.2 per cent BV), limited by high GNPA and weak capital buffers. But post-CY19 reforms, GNPA is at ~3 per cent, ROE in the range of 12-15 per cent, and BV rose 21 per cent in the last cycle. While private banks remain reliable early-cycle bets, PSU banks currently offer valuation-led convexity. A 100bp CRR reduction could lift FY26E earnings by 5-7bp and likely another 4bp if followed by a cut in the savings deposit rate, the brokerage firm said.

 

With the RBI shifting from an Accommodative to Neutral stance, the current cycle may be approaching its end, although another 25bp cut may be still plausible if CPI inflation undershoots RBI’s 3.7 per cent projection. The front-loaded policy action, strong capital buffers, and benign asset quality explain the move. With macro stability and liquidity in place, the setup favors clean balance sheet lenders in early-cycle recovery, analysts said.