PSU Bank Stocks Rally Up To 3% On Reports Of Centre Mulling New Banking Reforms
One key proposal under consideration is raising the current 20% cap on foreign ownership in public sector banks
PSU Bank Stocks Rally: Public sector banks outperformed in an otherwise subdued market on Wednesday, July 16, following reports that the Central government is considering a fresh wave of reforms in the financial sector.
According to a report by CNBC-TV18, sources indicated that further consolidation among public sector banks is on the table. The government is reportedly aiming to build larger, more resilient banking institutions capable of meeting the credit demands of a rapidly growing Indian economy.
By 12:50 p.m., the Nifty PSU Bank index had gained 1.5%, with Punjab & Sind Bank, State Bank of India, and Punjab National Bank leading the charge with gains of up to 2.6%. Notably, none of the 12 stocks in the index were in the red.
One key proposal under consideration is raising the current 20% cap on foreign ownership in public sector banks. If implemented, the move could attract long-term foreign capital and help widen the capital base of these lenders, making them more competitive and financially sound.
The government is also exploring the possibility of allowing large corporates to enter the banking sector, albeit with strong regulatory oversight and strict guardrails. These safeguards may include placing limits on corporate shareholding, restricting the use of bank capital for group financing, and permitting well-capitalized non-banking financial companies (NBFCs) to upgrade to full-fledged commercial banks.
As of the June 2025 quarter, four public sector banks—UCO Bank, Indian Overseas Bank, Punjab & Sind Bank, and Central Bank of India—had government shareholding levels exceeding 90%, underscoring the need for broader capital participation.
The latest reform buzz comes in the backdrop of the government's 2019 consolidation drive, which merged 10 public sector banks into four larger entities. The move was aimed at enhancing operational efficiency, reducing redundancies, and creating banks with stronger balance sheets and nationwide reach.
The market is now closely watching for further announcements that could shape the future landscape of India's public sector banking ecosystem.
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