PSU Bank Stocks Rally on Reports of Higher FDI Cap Consideration

Public sector bank (PSU) stocks witnessed strong gains on Wednesday after reports emerged that the Indian government may raise the foreign direct investment (FDI) limit in state-owned banks. Currently capped at 20%, the proposed change could allow foreign investors to own up to 49% of PSU banks, while the government would retain its majority stake of over 51%.

Government May Allow Higher Foreign Ownership

The news sparked a sharp rally across the sector. Shares of Indian Bank led the surge, while Canara Bank share price and Bank of Baroda (BOB) also hit record highs. By 10:15 AM, several PSU bank stocks had climbed as much as 3 to 4%, outpacing the broader market, which remained relatively subdued.

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The Nifty PSU Bank index emerged as the day’s best-performing sectoral index, rising more than 1.5% to touch a fresh 52-week high of 7,567.50, surpassing its earlier peak of ₹7,473.00 and closed at ₹7,431.95 (-0.26%). The rally highlighted renewed investor confidence in the public banking space amid expectations of policy reforms.

Analysts noted that if implemented, the move would be a significant reform aimed at attracting greater foreign capital into the banking sector. Additional inflows could strengthen the balance sheets of state-run lenders, improve liquidity, and support their expanding role in economic growth. Market experts also see this step as part of broader financial sector reforms designed to boost both domestic and international investor participation.

PSU Bank Stocks Hit Fresh Highs

However, not all PSU banks benefited equally from the rally. While most counters recorded solid gains, some, including Punjab National Bank (PNB), Union Bank of India, and Bank of Maharashtra stock price, retreated from their intraday highs and closed in the red.

The Economic Times reported that the policy framework under discussion seeks to balance the need for foreign investment with the government’s objective of maintaining majority control in these banks. By allowing foreign investors to increase their stakes, the government aims to enhance capital availability while safeguarding national interests.

Mixed Performance Across State-Run Banks

Market watchers believe the announcement could be a turning point for PSU banks, which have been working to clean up balance sheets and improve profitability. With the prospect of higher foreign ownership, these banks may also gain better access to global funding and enhance competitiveness against private peers.

Conclusion

The rally in PSU bank stocks underscores market optimism over the government’s possible move to raise the FDI cap. While details of the policy are still awaited, the development has already lifted sentiment in the sector, signalling investor readiness to back reforms that strengthen India’s financial system