PSU Bank Stocks Rally Up To 3%, Here’s Why

Shares of public sector banks (PSBs) outperformed the broader market on July 14, 2025, gaining as much as 3 per cent in early trade despite overall weakness in benchmark indices. The Nifty PSU Bank index, which represents the performance of the sector, surged as much as 1.60 per cent in early trade. At close, the index showed a gain of 0.73 per cent.

Among the index constituents, Canara Bank led with 3 per cent gains, followed by Union Bank of India, which rose up to 2.56 per cent. Indian Bank climbed up to 2.11 per cent, while Punjab National Bank and Bank of Baroda advanced as much as 2 per cent and 1.83 per cent, respectively. Other PSBs, such as Bank of India, Punjab & Sind Bank, and Maharashtra Bank were also in the green.

Capping the gains in the index were Indian Overseas Bank, and Central Bank of India. Index heavyweight State Bank of India (SBI) ended the day flat with a slight positive bias. UCO Bank shares also ended the day flat with a slight positive bias.

The rally in PSU banks came even as the broader market struggled amid mixed global cues and caution ahead of key macroeconomic data and corporate earnings.

Why PSU Bank Stocks Are Rising

The rally came after Bloomberg reported that the government is exploring measures to create more, larger, and financially stronger banks to help fund what is expected to be “one of the fastest paces of growth in the world for coming decades”.

According to the report, officials from the Ministry of Finance and the Reserve Bank of India (RBI) are discussing a range of potential reforms. These include allowing large companies to apply for banking licenses, encouraging non-banking financial companies (NBFCs) to become full-fledged banks, and making it easier for foreign investors to raise their stakes in public sector banks.

The talks are still at an early stage, and there’s no certainty about whether or when any of these ideas will be implemented, according to Bloomberg.

Canara Bank, Bank of Baroda Lower MCLR

Canara Bank has revised its marginal cost of funds-based lending rate (MCLR) across all loan tenures, with effect from July 12, 2025. According to an exchange filing dated July 11, the bank has reduced its MCLR by 5 basis points (bps) across tenures. The one-year MCLR, widely used as a benchmark for several loan products, has been brought down from 8.80 per cent to 8.75 per cent. Similarly, the overnight MCLR now stands at 7.95 per cent, while the three-year rate has been revised to 8.95 per cent.

A cut in MCLR means interest rates on loans, such as those on home, auto, and education may come down slightly, which is likely to attract more borrowers and help improve credit growth.

Similarly, Bank of Baroda also reduced its overnight MCLR by 5 bps to 8.10 from 8.15 previously, with effect from July 12. Earlier, Punjab National Bank and Indian Bank had also reduced their interest rates.