Select PSU banks gain in weak market; Canara, Union, BOB surge up to 3%

Business Standard

7 days ago

Public sector banks' price movement today
Shares of select public sector banks (PSBs) were trading higher by up to 3 per cent on the National Stock Exchange (NSE) in Monday's intra-day trade in an otherwise weak market.
Canara Bank, Union Bank of India, Bank of Baroda, Indian Bank, Punjab National Bank, Bank of India and State Bank of India (SBI) were up in the range of 1 per cent to 3 per cent in intra-day trade. Around 12 PM, these stocks are trading higher by up to 1 per cent.
At the same time, the Nifty PSU Bank index was up 0.45 per cent, as compared to a 0.43 per cent decline in the Nifty 50. The PSU Bank index has gained nearly 2 per cent in intraday trade on Monday. The Nifty PSU Bank Index is designed to reflect the performance of the public sector banks.
What's driving PSU bank stocks?
According to a media report, Finance Ministry officials are discussing increasing the cap on foreign direct investment (FDI) in public sector banks.
Officials from the Finance Ministry and central bank are discussing a variety of possible options, including authorising large companies to apply for banking licenses as long as they limit their shareholdings, incentivising non-bank finance companies to acquire full banking permits, and make it easier for foreign investors to raise stakes in state-run banks, Bloomberg reported.
MSME credit growth picks up
As per media reports, public sector banks have stepped up lending to new and lower-rated Micro, Small & Medium Enterprises (MSMEs), leveraging government guarantee schemes like Credit Guarantee Fund for Micro Units (CGFMU) and Emergency Credit Line Guarantee Scheme (ECLGS), which together cover ₹6.28 trillion.
While industry-wide MSME credit has shifted towards higher-rated borrowers, PSU banks still have 30.3 per cent exposure to subprime accounts versus 18 per cent for private banks. Overall, MSME asset quality has improved, with the gross NPA ratio falling to 3.6 per cent as of March 2025 from 4.5 per cent a year ago.
Revival in MSME lending is underway, with public sector banks driving credit flow to new and lower-rated borrowers under government-backed schemes like CGFMU and ECLGS. While private lenders continue to focus on high-quality, collateralised MSME borrowers, PSBs are supporting broader inclusion through policy-driven lending, ICICI Securities said in a note.
Meanwhile, bank credit growth remained muted in Q1FY26, reflecting subdued demand across corporate, retail, and NBFC segments. However, with the festive season ahead, expected revival in capex, and a lower interest rate environment, a pickup in credit momentum is likely from H2FY26 onwards, the brokerage firm said.
June 2025 (Q1FY26) quarter results preview
According to Motilal Oswal Financial Services, PSU banks profit after tax (PAT) growth to moderate sharply to 4.8 per cent Y-o-Y amid a decline in net interest margins (NIMs), normalised opex, and higher provisions sequentially due to the benefits of the one-time reversal in provisions on Security Receipts (SRs) reported in March 2025 quarter.
Net interest income (NII) is likely to remain flat Y-o-Y (down 1.8 per cent Q-o-Q) owing to a decline in NIMs. The brokerage firm estimates PSU banks to report a 6 per cent compounded annual growth rate (CAGR) in PAT over FY25-27.
Opex is likely to be under control and should follow a normalised trajectory for PSU banks. Treasury performance is likely to be better Q-o-Q amid a sharp decline in G-sec yields. The brokerage firm expects stable asset quality trends for PSU banks, aided by controlled slippages and robust PCR.