PSU Banking Stocks Extend Rally as Nifty PSU Bank Index Hits Record High

Public sector banking stocks continued their strong upward momentum for the 7th straight session on Tuesday, January 6, even as broader equity markets traded in a narrow range. The sustained rally pushed the Nifty PSU Bank index up by 1.32% to a fresh all-time high of 8,856, taking its cumulative gain over the past seven sessions to nearly 7%.

All PSU Bank Stocks Trade Higher

Strong Credit Growth Fuels Optimism

Market sentiment around PSU banks has been supported by expectations of a solid December-quarter performance. Recent Q3 business updates from several banks indicated an improvement in gross advances, pointing to a pickup in system-wide credit growth.

Latest fortnightly data for the period ending December 15, 2025, showed that system credit growth rose to 12% year-on-year, up from 11.5% in late November. In contrast, deposit growth moderated to 9.4% year-on-year from 10.2% earlier, improving the credit-deposit dynamics for banks.

Sectoral credit data for November 2025 also highlighted a steady rise in overall lending growth, supported by stronger demand across industry, retail, and services segments.

Supportive Policy Environment Adds Momentum

The rally in PSU banking stocks has also been aided by a favourable macro environment. The Reserve Bank of India reduced the policy repo rate by a cumulative 125 basis points through December, helping lower borrowing costs and support loan demand.

Additional policy measures, including GST rationalisation and earlier income tax reductions, have further boosted credit appetite across the economy. These factors have strengthened the outlook for loan growth, especially for large public sector lenders with wide retail and corporate reach.

Improving Asset Quality Outlook

Investor confidence has also been reinforced by signs of improving asset quality. The RBI’s latest bi-annual Financial Stability Report pointed to better headline asset quality trends across India’s financial system, easing concerns around stress in bank balance sheets.

Read more: Top SIP Stocks for January 2026: Hindalco, BEL, NTPC, and Others Based on 5Y CAGR and D/E Ratio.

Conclusion

PSU banking stocks are benefiting from a mix of strong credit growth, supportive monetary policy, and improving asset quality indicators. With the Nifty PSU Bank index at record highs and expectations of healthy Q3 earnings, investor sentiment toward public sector banks remains positive. However, future performance will depend on how well banks sustain credit growth while managing deposits and asset quality in a changing interest rate environment.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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