Nifty PSU Bank Index Hits Record High: PNB, SBI Lead Rally; Here’s Why PSU Banks Are Surging
- 18th February 2026
- 07:00 PM
- 3 min read
Summary
The Nifty PSU Bank index touched a fresh all-time high of 9,647 on February 18, 2026, extending its six-month rally. Strong Q3FY26 earnings, improving asset quality, rising mutual fund allocation, and sustained credit growth have driven sharp gains across public sector lenders.Nifty PSU Bank Index Hits Fresh All-Time High
PSU banking stocks surged for the third consecutive session, with the Nifty PSU Bank index reaching a record high of 9,647 on February 18, 2026. The milestone marks the continuation of a rally that has now extended for six consecutive months.
The index has gained 4.1% over the last one week and nearly 7% in the past one month, reflecting sustained buying interest in public sector lenders. Since September 2025, the index has appreciated by 41%, significantly exceeding the performance of the benchmark Nifty 50.
All 12 constituents traded in positive territory today. Among key movers:
- Punjab National Bank (PNB): up 2.7%
- Bank of Maharashtra: up 2.5%
- Punjab & Sind Bank: up 2.3%
- Union Bank of India: up 2.2%
- State Bank of India (SBI) has gained 17% in the last one month.
Strong Q3FY26 Earnings Drive Rally
The primary driver for the rally is the record financial performance reported for the third quarter of FY26. Aggregate net profits for the 12 public sector banks reached ₹52,603 crore, marking an 18% year-on-year increase.
SBI contributed nearly 40% of total sector earnings, reporting its highest-ever quarterly profit of ₹21,028 crore.
Punjab National Bank posted a 13% rise in net profit to ₹5,100 crore, with gross NPA improving to 3.19%.
Canara Bank and Bank of India also reported steady profit growth, supported by improvement in asset quality and stable NII performance. Bank of India’s net profit rose 7.4% YoY to ₹2,705 crore, while NII grew 6.4%.
Credit Growth Picks Up; Asset Quality Improves
System-wide credit growth for PSU banks accelerated to around 15% year-on-year, driven largely by retail and SME lending. Corporate loan demand also showed gradual improvement.
Asset quality remains at multi-year best levels. SBI reported a gross NPA ratio of 1.57%, it’s lowest in two decades, while the aggregate gross NPA for PSU banks averaged 2.27%.
Mutual Funds Raise Allocation to 3-Year High
Mutual funds increased exposure to PSU banks in January, taking allocation to a three-year high of 3.7%.
This marks a 30 basis point month-on-month rise from 3.4% in October, November, and December 2025.
On a year-on-year basis, allocation has risen by 90 basis points from 2.8% in January 2025, according to reports.
Budget Capex Push and Regulatory Tailwinds
The Union Budget 2026 proposed raising government capital expenditure to ₹12.2 lakh crore for FY27, which is expected to boost infrastructure-led credit demand.
In addition, draft RBI guidelines to curb misselling of financial products could weigh more on private banks with higher bancassurance dependence, indirectly benefiting PSU lenders.
Reports also suggest the government is considering raising the FDI limit in PSU banks to 49%.
What Lies Ahead for PSU Banks?
Near-term implications for the sector involve a balance between core operational growth and potential treasury volatility. While firm government bond yields may exert mark-to-market pressure on bank treasury portfolios, data indicates that robust loan growth and stable margins are likely to provide a cushion.
The market capitalization of State Bank of India recently surpassed ₹12 lakh crore, positioning it as the fourth most-valued listed entity in India.
As the sector enters the final quarter of the fiscal year, the focus remains on maintaining deposit mobilization to support the ongoing credit expansion.
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