Canara Bank, other PSU bank stocks rally up to 3% amid govt’s consideration to raise foreign investment limit

Shares of public sector banks rallied on the NSE on Wednesday, with several counters gaining up to 3% as of 10:15 AM, following news that the Indian government is considering raising the foreign direct investment (FDI) limit in public sector banks (PSBs) from the current 20%.

The move, if implemented, would be part of broader financial sector reforms aimed at boosting capital inflows and strengthening the role of PSBs in economic growth.

As of 10:15 AM, the Nifty PSU Bank index was trading at 7,532.30, up 1.09% or 81.20 points from the previous close.

Among the top gainers, Indian Bank shares led the PSU bank rally with a sharp gain of 3.01%, followed by Punjab & Sind Bank, which rose 1.83%, and Canara Bank, up 1.78%.

Central Bank of India advanced 1.40%, while Indian Overseas Bank gained 1.39%. UCO Bank and Bank of India climbed 1.21% and 1.19%, respectively. Bank of Baroda added 1.12%, and State Bank of India was up 0.76%.

Union Bank of India edged higher by 0.44%, Punjab National Bank gained 0.51%, and Bank of Maharashtra saw a more modest rise of 0.40%.Investors responded positively to reports that policymakers are evaluating a proposal to increase the foreign investment ceiling in PSBs, currently capped at 20% for FDI and 10% for voting rights, significantly lower than the 74% limit in private banks.A senior government official, as per earlier ET reports, indicated that the public sector character of these banks would be preserved, with the government retaining at least a 51% stake. Discussions are underway to explore mechanisms like the “golden share” model, allowing the government to retain control even if foreign ownership increases.

The development is seen in the context of PSBs having shown significant improvement in financial health.

According to official data, gross NPAs in public sector banks declined to 2.58% as of March 2024, down from 9.11% in March 2021. Net profits rose to Rs 1.78 lakh crore from Rs 1.04 lakh crore, while dividend payouts increased to Rs 34,990 crore.

The government views these improvements as a foundation for allowing greater foreign capital participation without undermining governance or public accountability.

While a final decision is pending, the market appears to be factoring in the potential inflow of foreign capital and the long-term growth prospects for the sector. The rally in PSU bank stocks reflects investor optimism surrounding the reform push and expectations of a more capital-efficient banking system.

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