PSU Bank Stocks Gain In Weak Market As Government Mulls Raising Foreign Investment Cap

The Nifty PSU Bank index was the only sectoral gainer in a weak market on Wednesday.  The index gained as much as 1.5%, with nine of the 12 constituents trading in the green.

Indian Bank (+2.5%), Canara Bank (+1.1%), and Bank of India (1%) were the top gainers in the index, while Union Bank of India (-0.7%), Bank of Maharashtra (-0.3%), and Punjab National Bank (-0.87%) declined.

Why Are PSU Banks Gaining?

According to a report by the Economic Times, India is considering raising the foreign investment cap in public sector banks, currently set at 20%.

Under the proposed changes, the government would retain a minimum 51% stake in PSBs to safeguard their public structure, while allowing greater private and foreign participation. The adjustment would also likely relax the current voting rights ceiling, which is limited to 10%.

While these banks have improved their financial health and substantially reduced non-performing assets, the aim is to transform them into globally competitive institutions capable of scaling to support India’s infrastructure and growth ambitions.

To allay concerns about dilution of control, the government may explore mechanisms such as a golden share, ensuring decisive decision power remains with the state even as external investors increase their stakes.

If approved, this reform could unlock significant fresh capital inflows into India’s banking sector, improving liquidity and lending capacity. 

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