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News Topical, Digital Desk : In the share market, there has been a massive sell-off in IT shares in the last few days. Apart from this, shares of most sectors, except metal and energy sector, did not give any significant returns. But, amidst all this, PSU Bank Shares have shown tremendous movement and have consistently given strong returns with strength. The way government banks have made a comeback in the last few years has changed the outlook of the entire market. The recent quarterly figures show that PSU banks are no longer just stable, but are moving ahead with strength.
Most notably, the combined market capitalization of India's 12 PSU banks has increased by ₹6 lakh crore to ₹21.35 lakh crore in the past six months. The Nifty PSU Bank Index delivered a 40% return during this period, while the private bank index delivered a mere 10% return. There are several key reasons for the surge in public sector bank shares. Let's understand this from a market expert's perspective.
Understand why the situation changed?
Independent market expert Abhishek Bhatt said that there was a time when PSU banks were under pressure due to rising NPAs (bad loans) and weak balance sheets. However, the situation is different today with NPAs under control, double-digit profit growth, a strong capital base, and digital reforms.
The government has already merged some banks , and these steps have reduced costs, increased scale, and strengthened competitiveness. Now that the banking sector has stabilized, there is discussion in the market about whether the government might initiate the next phase—especially among medium-sized PSU banks. However, regarding the ongoing discussions about merging public sector banks, Finance Minister Nirmala Sitharaman stated that there is no such roadmap at present, but rather that the government will now form a special committee to further advance and strengthen the banking sector.
Why is there a need for merger of banks?
- Need for scale – Large projects and infrastructure finance require a strong balance sheet.
- Cost reduction – There will be less duplication in branches and technology.
- Global competition – Larger banks can compete better internationally.
- Government strategy – move towards “fewer but stronger banks” model.
Although the government does not have any such plan right now, the market has already started pricing in the possibilities.
Why are DIIs buying PSU banks?
Domestic institutional investors (mutual funds, insurance companies, etc.) have increased their stakes in PSU banks over the past few months . There are several reasons for this:
- valuations still attractive
- PSU banks are still trading at lower price-to-book compared to private banks.
- Balance sheet improved
- This is no longer a "turnaround story" but a "sustainable growth story."
- Strong government support - The government's clear message is that the banking sector will be kept strong
- Stable profits and dividends
- PSU banks are now offering regular profits and attractive dividends – which is important for DIIs.
- What next?
If the government announces the next round of mergers:
Small/medium PSU banks could see a surge
- Valuation re-rating possible
- Competition and efficiency will increase
- Also Read - IT stocks are surging, with AI growth a major reason; brokerage firms have reduced confidence in the entire sector, including TCS and Infosys
But investors should also keep in mind that the merger process also presents challenges of timing and coordination. Strong results, potential mergers, and increased DII buying signal that the story of public sector banks is far from over; a new chapter may be just beginning.
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