Following the presentation of India’s Union Budget 2026 by Finance Minister Nirmala Sitharaman on 1 February 2026, shares of public sector banks (PSU Banks) witnessed a sharp decline, reflecting investor caution over the government’s ambitious borrowing plans. The Nifty PSU Bank index dropped nearly 7 per cent intraday, reaching a low of 8,387.95 points, compared with the previous session’s close of 9,019.35 points. By 2 p.m., the index had partially recovered to 8,684.95 points, still down 334.40 points or 3.71 per cent.
All constituent banks of the index experienced downward trading pressure, with major lenders registering losses ranging from 3 to 7 per cent. The table below highlights the extent of the decline among leading PSU banks:
| Bank Name | Share Decline (%) |
|---|---|
| Bank of India | 5.8 |
| Bank of Maharashtra | 5.2 |
| Indian Bank | 4.9 |
| Bank of Baroda | 6.3 |
| Union Bank of India | 6.7 |
| State Bank of India | 7.0 |
| Indian Overseas Bank | 3.0 |
| Central Bank of India | 3.2 |
| Punjab & Sind Bank | 3.1 |
| Canara Bank | 2.9 |
| Punjab National Bank | 3.0 |
| UCO Bank | 3.0 |
Market analysts attribute the immediate slump to the budget’s announcement of substantial government borrowing and fiscal policy measures. Finance Minister Sitharaman revealed that the central government intends to raise a record ₹17.2 trillion from the market in fiscal year 2026–27 (FY27). In addition, capital expenditure is projected to rise by 9 per cent in the upcoming fiscal year.
The budget speech also unveiled the formation of a high-level banking committee tasked with reviewing the structural, regulatory, and developmental framework of India’s banking sector. The committee will ensure long-term alignment between government priorities and banking sector growth. Sitharaman emphasised that the current banking sector is marked by robust balance sheets, improved asset quality, and extensive regional coverage, reaching over 98 per cent of Indian villages.
Economists and market commentators suggest that while short-term market reactions are negative due to immediate recapitalisation and borrowing concerns, these reforms could bolster PSU banks’ operational efficiency and investor confidence over the long term. Analysts further note that strengthening public sector banks and non-banking financial companies (NBFCs), improving governance, and adopting new technology will facilitate capital flow into critical infrastructure and priority sectors without undermining financial stability or customer protection.
In conclusion, despite the initial market setback, the Union Budget 2026 lays the groundwork for a more resilient and future-ready banking sector, potentially advancing India’s vision of a “New India” with stronger financial institutions.