Bank of Maharashtra, UCO Bank, and IOB Surge Up to 6% As PSU Stocks Rally Ahead of the RBI Policy Meet

On Monday, June 2, 2025, the first trading day of the month, public sector bank (PSU) stocks were in the spotlight, with several rising sharply in intraday trade. Shares of Bank of Maharashtra, Central Bank of India, Union Bank of India, UCO Bank, Indian Overseas Bank (IOB), Indian Bank, Punjab & Sind Bank, Bank of India, and Punjab National Bank surged between 3% and 7% on the NSE. Indian Bank even touched a record high of ₹644.90 after climbing 5%.

The Nifty PSU Bank index increased as much as 2.5% during the day to touch 7,150.95. Over the last two sessions, the index has gained 5.5% from 6,780.70, which was its level on May 29.

At 1:23 PM, the Nifty PSU Bank index was up 2.4%, while the broader Nifty 50 was down 0.14%.

Anticipation Builds Around RBI Policy Decision

Investors are watching the Reserve Bank of India’s (RBI) upcoming monetary policy committee (MPC) meeting, which begins on Tuesday, June 4. The policy decision will be announced on June 6. 

With inflation easing and economic growth picking up, the RBI is expected to continue shifting toward an accommodative policy stance. The central bank had already decreased the repo rate by 25 basis points each in February and April after keeping it unchanged for 11 meetings.

Strong GST Numbers Add to the Positive Mood

Adding to investor optimism were strong tax collection figures. In May, net GST collections jumped 20.4% year-on-year to ₹1.73 trillion, supported by a 72.9% increase in Customs revenue and lower refunds.

While slightly lower than April’s record ₹2.09 trillion, May’s gross GST collection stood at ₹2.01 trillion — a 16.4% rise compared to the same period last year. These strong numbers signal robust government revenues and a growing economy, which could boost demand for loans and improve the financial health of PSU banks.

Inflation Drops, Creating Room for Growth Support

India’s retail inflation eased to 3.16% in April, compared to 3.34% in March, mainly because of lower prices for vegetables and pulses. This easing of inflation gives the Reserve Bank of India (RBI) more room to focus on boosting economic growth, possibly through interest rate cuts. The decline in inflation follows strong GDP growth of 7.4% in the January–March quarter, which exceeded the RBI’s estimate of 7.2%.

Indian Bank’s Outlook Reflects Optimism

In its FY25 annual report, Indian Bank said the government’s focus on boosting consumption and capital expenditure (as outlined in the Union Budget), strong GST collections, a positive outlook for agriculture, and healthy corporate and bank balance sheets are all expected to support India’s growth momentum.

The bank added that with a cyclical recovery already in progress, monetary policy support through rate cuts, increased liquidity, and relaxed regulations will further strengthen the economy.

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RBI’s Policy Measures are Helping the Banking Sector

The RBI has taken several steps in recent months to stabilise the banking system. These include cutting the cash reserve ratio (CRR), reducing the repo rate, adjusting regulations, and conducting Open Market Operations (OMO), Variable Rate Repos (VRR), and currency swaps.

These actions have helped slow down the outflow of foreign direct investment (FDI) from the Indian banking sector. While a liquidity crunch and high base had affected credit growth, demand for loans, especially for homes and vehicles, remained strong due to government spending on infrastructure.

The recent rollback of increased risk weights on bank lending to NBFCs, along with further repo rate cuts, is expected to improve liquidity and support credit growth in FY26, Indian Bank noted in its annual report.

Conclusion

With the RBI's policy review approaching, markets are hopeful for a supportive stance that will further benefit public sector banks and boost credit growth. If these expectations are met, the PSU banking rally may have more steam left in the coming weeks.

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