The Nifty PSU Bank index snapped its three-day losing streak on June 20, rising over 1 percent after the Reserve Bank of India (RBI) issued final guidelines on project finance loans that were more lenient than earlier proposals.
All 11 stocks within the Nifty PSU Bank index traded in the green. Shares of state-owned banks such as Central Bank, Union Bank, Canara Bank, Indian Overseas Bank, Bank of Baroda, and SBI gained up to 2 percent in intra-day trade.
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The new norms reduce the capital that banks and non-banking financial companies (NBFCs) must set aside for infrastructure and real estate project lending, freeing up capital for additional lending and easing profitability pressures.
Analysts at Emkay Global believe large public sector banks will be among the biggest beneficiaries of the move, calling the final RBI norms "pragmatic" as they sharply reduce provisioning burdens.
Bernstein analysts echoed this view, highlighting that the relaxed rules—when combined with expected rate cuts and adequate liquidity—set the stage for a strong revival in project lending.
Under the revised guidelines, standard asset provisioning for loans to under-construction infrastructure projects has been cut from the earlier proposed 5 percent to just 1 percent. For commercial real estate projects, the provisioning requirement has been set at 1.25 percent. These updated norms will take effect from October 1, 2025.
Meanwhile, PSU banks have been delivering strong financial performance. The combined net profit of all 12 public sector banks reached an all-time high of Rs 1.78 lakh crore in FY25, reflecting a 26 percent increase from Rs 1.41 lakh crore in FY24. SBI was the biggest contributor, accounting for over 40 percent of total PSU bank earnings in FY25.
Among individual performers, Punjab National Bank posted the highest profit growth, with net earnings more than doubling to Rs 16,630 crore—up 102 percent year-on-year. Punjab & Sind Bank also posted a strong 71 percent rise in profit to Rs 1,016 crore.
In the past three months, the Nifty PSU Bank index has climbed 12 percent, outperforming the Nifty 50, which has risen 7 percent in the same period.
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