After emerging as top performers in 2025, PSU banking stocks have continued their upward trajectory this year, with investors maintaining a constructive stance on the sector, resulting in a majority of constituents scaling fresh record highs even as the broader market remains volatile.
The rally is underpinned by robust December quarter earnings, supported by an acceleration in system-wide credit growth, margin recovery, and improved asset quality.
While the Union Budget 2027’s higher borrowing plan for the next fiscal year triggered panic selling earlier this month, stocks staged a strong comeback. The gauge of PSU banks—the Nifty PSU Bank index—hit another all-time high of 9,294 in today’s session (February 12), taking its year-to-date returns to 8%.
3 PSU stocks deliver double-digit returns YTD
Among individual stocks, SBI shares remained higher for the second straight session today, touching an all-time high of ₹1,203.70 per piece.
The rally has propelled the stock 22% higher in 2026 so far. SBI’s market capitalization has surged past ₹12 lakh crore, making it the fourth most-valued listed company in the Indian stock market.
Union Bank of India shares, too, delivered a double-digit return of 16.7% in 2026, with the stock earlier this month touching a record high of ₹183 apiece.
Bank of India jumped 14.22%, while other Nifty PSU Bank constituents such as Bank of Maharashtra and Indian Bank rose 7% and 6%, respectively, during the same period.
The Reserve Bank of India cut the key policy rate by a cumulative 125 basis points through December. In addition to the repo rate cuts, GST rationalization and earlier income tax reductions supported credit growth in the system during Q3, prompting SBI to raise its FY26 credit growth guidance to 13–15% from 12–14% earlier.
Additionally, the RBI’s recently released biannual Financial Stability Report (FSR) points to improving trends in headline asset quality metrics across India’s financial sector.
Core growth to cushion PSU banks
Anil Rego, founder and fund manager at Right Horizons PMS, said the higher-than-expected FY27 gross borrowing program is likely to keep government bond yields firm in the near term, which in turn raises the risk of MTM pressure on banks’ treasury portfolios.
He noted that with yields projected to grind higher over the course of the year amid elevated borrowing needs and a reduced probability of rate cuts, valuation losses on held-for-trading and available-for-sale books could become more visible, especially for institutions carrying a larger proportion of G-secs outside the HTM bucket.
Rego added that strong core operating performance, supported by steady credit growth and disciplined cost control, can still support overall profitability through FY27, making the earnings story more resilient than bond market moves alone might suggest.
Specifically, about PSU banks, he said the impact will be uneven. Those that had earlier built sizeable HTM cushions may be relatively insulated, as securities in this category are not subject to daily MTM. However, banks that increased AFS exposure during the softer yield phase could see quarterly treasury volatility rise if the 10-year yield trends higher over FY27.
That said, Rego emphasized that the stress is more likely to be earnings-timing related rather than structural. “Stronger core credit growth and improving margins can offset treasury swings over the full year, though reported profits in individual quarters may appear more volatile if bond yields remain elevated,” he further added.
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