Public sector lenders such as SBI, Bank of Baroda, and Union Bank of India have extended their weekly winning streak, defying the broader market weakness as investor sentiment towards these counters remains upbeat, supported by improving fundamentals, attractive valuations and reports of the government raising the foreign investor limit.
Seven out of twelve constituents of the Nifty PSU Bank index ended this week in the green. Bank of Baroda led the pack with a 4% gain to ₹289, while Bank of Baroda, Union Bank India, Canara Bank, Indian Bank and Bank of Maharashtra followed with advances up to 4.7%
State Bank of India (SBI), the heaviest weighted stock in the index, rose 2% this week to ₹955.85, extending its weekly winning run to six, the longest stretch since May 2021.
The strong gains across individual counters lifted the Nifty PSU Bank index by 2.05% this week, marking its third consecutive weekly advance.
The current rally builds on the stellar comeback seen in March, when PSU banking stocks broke a 10-month consolidation phase. The uptrend gained further traction following the government’s consumption-boosting measures, including GST rate cuts that improved liquidity and demand outlook.
Reflecting the improving operating environment, recent data also points to strengthening credit trends. According to the latest fortnightly figures as of October 18, 2025, system credit growth edged higher to 11.4% year-on-year, up from 10.4% YoY as of September 19, 2025, underscoring the steady recovery in lending activity.
Analysts continue to remain positive on banks given the inch up in credit growth, NIMs bottoming out, and benign/improving asset quality.
Meanwhile, the Indian government is planning to allow direct foreign investment in state-run banks of up to 49%, more than double current limits, according to a Reuters report.
According to a report by Nuvama Institutional Equities, India’s state-run banks could see a windfall of up to $4 billion in passive inflows if the government raises the foreign institutional investment (FII) limit to 49% from the current 20%.
Nifty PSU Bank index on track to extend annual gains to five years
The Nifty PSU Bank index is on course to extend its annual winning streak to fifth year, having already advanced 28% so far in 2025, making it the best-performing sectoral index this year.
After lagging for three consecutive years, state-owned bank stocks made a remarkable comeback in 2020, propelling the index to surge nearly 70% that year. The rally has continued in the subsequent years, reflecting sustained investor confidence in the sector.
Notably, the index has delivered over 25% returns in four of the last five years, including 2025. Among individual constituents, Indian Bank has been the standout performer, soaring 1,349% over five years.
Other major gainers include Canara Bank, Bank of Baroda, Union Bank, Bank of Maharashtra, Punjab National Bank, SBI, and Indian Overseas Bank, each rising between 300% and 665% during the same period.
Combined profits of PSBs cross ₹49,000 crore in Q2
Public sector banks reported a record cumulative net profit of ₹49,456 crore in Q2FY26, reflecting a 9% improvement as compared to ₹45,547 crore in the same period last year.
SBI accounted for the largest share, contributing 40% to the total earnings. In percentage terms, Indian Overseas Bank reported the highest growth among public sector lenders, with profit rising 58% to ₹1,226 crore.
Only Bank of Baroda and Union Bank are two banks that reported a drop in net profit. For the first half of FY26, public sector banks together earned ₹93,674 crore, up nearly 10% from ₹85,520 crore in the same period last year, marking the first time aggregate PSB profits crossed the ₹90,000 crore mark.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.