Nifty PSU Bank index scales record high, jumps 20% in 2 months—Here’s what’s driving the rally

Public sector bank shares continued their winning streak on Tuesday, with the Nifty PSU Bank index surging to a record high of 8,118.95, up nearly 2 per cent in intra-day trade on the National Stock Exchange (NSE).

At 11:53 AM, the index stood 0.37 per cent higher, outperforming the Nifty 50, which was down by 0.30 per cent. PSU Bank index earlier touched 8,053.40 on Monday, surpassing its previous peak of 8,053.30 set on June 3, 2024. Over the past two months, the index has rallied 20 per cent, compared with a 6.2 per cent rise in the benchmark Nifty during the same period.

PSU Bank stocks rally: Top gainers in trade

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Leading the charge among public sector banks were State Bank of India (SBI), UCO Bank, Punjab & Sind Bank, Central Bank of India, Punjab National Bank (PNB), Indian Bank, Union Bank of India, Bank of Maharashtra, and Canara Bank, all trading 1–2 per cent higher in early deals.

Why PSU Bank stocks are rising today

PSU Bank stocks are rising amidt media reports suggesting that the Government of India may raise the foreign direct investment (FDI) limit in state-run banks to 49 per cent, up from the current 20 per cent. The move is taken with the target of attracting more overseas capital and aligning regulations with private sector banks, where foreign ownership is allowed up to 74 per cent.

Sources indicate that the Finance Ministry is in talks with the Reserve Bank of India (RBI), although the proposal is still at a preliminary stage. Importantly, the government intends to retain at least a 51 per cent stake in public sector banks to maintain control.

What's in bag for PSU Bank stocks: Brokerage views

According to Jefferies, productivity differences among Indian banks are expected to reflect in growth and profitability trends. The brokerage noted that while HDFC Bank, SBI, and IDFC Bank show stronger deposit productivity, PSU banks and IndusInd Bank lag behind. On fee income per asset, IDFC Bank ranks highest, while larger private banks sit in the middle and PSBs remain lower.

Jefferies added that IDFC Bank’s metrics may normalise as it expands branches and balances growth rates, but PSU banks’ improving asset quality and steady deposit momentum could sustain investor interest.