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Shares of public sector banks soared to new 52-week highs when it was reported that the government may raise the foreign investment limit in state-owned banks. The change, if true, would allow foreign portfolio investors (FPIs) to own up to 49% in PSU banks, from the current 20%, while the government still retains control.
Nifty PSU Bank index was the standout gainer, climbing over 1.5% to a yearly high of 7,567.50, surpassing its previous peak of 7,473.
Within the index, several stocks scaled fresh highs. State Bank of India (SBI) rose 1.13% to Rs. 880.50 on NSE, while Canara Bank extended its winning streak with a 2.2% jump to Rs. 124.55, marking its best monthly performance in nearly three years.
Indian Bank led the rally with a 3.8% rise to Rs. 722. Other gainers included Bank of Baroda, Punjab & Sindh Bank, and Indian Overseas Bank.
The sharp uptick in Canara Bank shares follows months of underperformance, with the stock rising nearly 19% in September. Year-to-date, the stock has delivered 23% in gains, and analysts think the momentum could keep it positive for the fifth straight year.
For SBI, the uptrend has been supported by the recent stake sale in YES Bank. India’s largest lender offloaded a 13.18% stake to Japan’s Sumitomo Mitsui Banking Corporation for Rs. 8,889 crore.
The transaction, cleared by both the Reserve Bank of India (RBI) and the Competition Commission of India (CCI), reduces SBI’s holding in YES Bank to 10.8%.
Banks, including BoB, Canara Bank, and Indian Bank, are forecasting a loan growth rate of 2.5-4% quarter-on-quarter, and NIMs will likely remain stable to marginally lower
Brokerages have noted SBI, BoB, and PNB as strong return on assets (RoA) performers and have improved considerably from the sector's fundamentals four years ago.
Gross NPAs in PSBs were sharply lower at 2.58% as of March 2025, compared to over 9% in 2021. Profits increased to Rs. 1.78 trillion in FY25 from Rs. 1.04 trillion in FY21, and dividend payouts have also increased substantially.
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Renewed interest from investors in PSU banks is due to the easing of FPI limits and improving financial metrics. While pressures of liquidity continue in the short run due to tax outflows, analysts expect that both liquidity and spreads will improve with government spending and measures taken by the RBI.
With valuations still at a discount to private sector peers, market experts see scope for a structural re-rating of PSU banks, reinforcing the sector’s long-term growth trajectory.
