Following the announcement of India’s Union Budget for the fiscal year 2026–27 (FY27) by Finance Minister Nirmala Sitharaman, shares of the country’s public sector banks (PSU Banks) witnessed a sharp decline on Monday, 1 February. The Nifty PSU Bank Index dropped by nearly 7% during intraday trading, reflecting investor concerns over the government’s borrowing plans and policy directions.
The index touched an intraday low of 8,387.95 points, down approximately 7% from the previous session’s close of 9,019.35 points. By 2:00 PM, the index had partially recovered to 8,684.95 points, still reflecting a decline of 334.40 points or 3.71%.
All major public sector banks traded in negative territory, with individual stock declines ranging from 3% to 7%.
Public Sector Bank Share Performance
| Bank Name | Share Decline (%) |
|---|---|
| Bank of India | 5.8 |
| Bank of Maharashtra | 5.2 |
| Indian Bank | 4.9 |
| Bank of Baroda | 6.3 |
| Union Bank of India | 6.7 |
| State Bank of India | 7.0 |
| Indian Overseas Bank | 3.0 |
| Central Bank of India | 3.2 |
| Punjab & Sind Bank | 3.1 |
| Canara Bank | 2.9 |
| Punjab National Bank | 3.0 |
| UCO Bank | 3.0 |
The fall in PSU bank stocks has been primarily attributed to the government’s plans for increased borrowing. Finance Minister Sitharaman announced that the central government intends to raise up to ₹17.2 trillion from the market in FY27. Simultaneously, capital expenditure for FY27 has been increased by 9%, highlighting the government’s commitment to infrastructure development and strategic growth projects.
In her budget speech, the Finance Minister also proposed the formation of a high-level banking committee. This committee will assess the structure of the banking sector, regulatory frameworks, and preparations for the next phase of economic growth. Sitharaman noted, “The current banking sector is characterised by strong balance sheets, improved asset quality, and regional coverage exceeding 98% of India’s villages.”
Market analysts have suggested that while the immediate market reaction is negative, these reforms and investment initiatives are expected to strengthen the operational efficiency and investor confidence in public sector banks over the medium to long term. Experts further note that the consolidation of PSU banks and public sector non-banking financial companies (NBFCs), combined with technological adoption and good governance, will facilitate capital flow to infrastructure and priority sectors without undermining financial stability or customer protection.
Thus, despite the short-term decline in PSU bank shares, the FY27 budget is widely seen as a strategic step towards creating a stronger, more sustainable banking sector aligned with India’s “Developed India” vision.