Nifty Bank falls 1.3% post Budget 2026, PSU banks lead losses as merger, borrowing concerns weigh

Nifty Bank

• Banking stocks fell sharply in Budget session, Nifty Bank down 1.3 percent
• PSU banks led declines, Nifty PSU Bank index dropped 3.8 percent
• Budget concerns over mergers and record borrowing weighed on PSU lenders

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Banking stocks came under sharp pressure in Sunday’s special Union Budget trading session, dragging the Nifty Bank down by 1.3%. Public sector lenders bore the brunt of the sell-off amid concerns over potential mergers and elevated government borrowing.

Around 2 pm, the Nifty Bank index was down 1.3 percent at 58,832. The weakness was far more pronounced in government-owned banks, with the Nifty PSU Bank index tumbling 3.8 percent, posting the steepest decline among major sectoral indices. In contrast, the Nifty Private Bank index slipped a relatively modest 0.9 percent.

All 12 constituents of the PSU Bank index were trading in the red. State Bank of India fell 3.6 percent, while Bank of Baroda slid 4.7 percent and Union Bank of India declined 4.2 percent. Punjab National Bank was down 2.2 percent and Canara Bank shed 2 percent, with several other PSU lenders such as Bank of India, Bank of Maharashtra and Indian Bank falling between 4 and 6 percent.

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Private lenders also saw losses, though to a lesser extent. ICICI Bank, Axis Bank, Bandhan Bank and IDFC First Bank were down in the range of 1 to 4 percent. AU Small Finance Bank was the lone gainer in the broader banking pack, edging up 0.3 percent.

Market participants pointed to Budget-linked concerns weighing disproportionately on PSU banks. The government’s announcement of a high-level committee to review the banking sector has revived speculation around consolidation among public sector lenders.

“Historically, bank mergers tend to create a near-term drag on performance,” said Anand Dama, head of BFSI Research at Emkay Global, as cited by Reuters.

In addition, the government’s plan to borrow a record Rs 17.2 trillion in 2026-27 -- above most market expectations -- has added to the pressure. Higher gross market borrowings could keep bond yields elevated, potentially hurting treasury gains for PSU banks, Dama added.

The sharp correction comes despite a strong run-up in PSU banking stocks last month. The PSU Bank index had risen 5.7 percent in January, even as the benchmark Nifty 50 fell 3.1 percent, making the segment vulnerable to profit-taking on Budget day.

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