Why did SBI and other PSU Bank stocks fall more than 8% today?

Synopsis: PSU bank stocks suffered a sharp decline after the 2026 Budget. Investors had been expecting an increase in the FDI limit or some bold reforms, but these hopes were not realised. Instead, the government unveiled record borrowing of Rs 17.2 lakh crore, which pushed bond yields higher and hurt banks’ bond portfolios. 

On Budget Day 2026, Indian equity markets witnessed volatility and a sharp sell-off, and public sector bank (PSU bank) stocks were among the biggest decliners. The Nifty PSU Bank index moved into negative territory, with major lenders such as Bank of India, Bank of Baroda, Indian Bank, and State Bank of India trading lower by up to about 8 percent during the session.

Reason behind the plunge

PSU bank stocks dropped sharply today because investors were disappointed with the lack of reform announcements following the Union Budget 2026. One major hope before the Budget was that the government might raise the Foreign Direct Investment (FDI) limit to 49 percent in public sector banks, beyond the current cap. Many analysts thought this change could help PSU banks attract capital more easily and better compete with private lenders. 

Investors were looking for this change as part of broader banking reforms, but the Budget did not announce an immediate increase in the FDI limit, which led to disappointment.

Another key factor was higher government borrowing and rising bond yields. The Budget revealed that the government plans to borrow a record Rs 17.2 lakh crore for FY27, which was way higher than expected and caused an increase in bond yields. 

Higher yields negatively impact banks’ existing bond holdings since bond prices decline when yields rise. PSU banks have large portfolios of government securities, which affected investor sentiment and contributed to the sell-off.

Additionally, the reforms suggested for the banking sector seemed aimed at the long term rather than providing immediate solutions. Instead of concrete actions, the Budget proposed a high-level committee to review PSU banks under the Viksit Bharat 2047 vision, indicating that any changes are likely further down the line. 

Profit-taking and general market caution also added to the decline. On Budget day, traders often move away from sectors without strong short-term triggers. PSU banks had gained significantly recently, so some investors decided to realise profits, which intensified the downward trend. 

As a result of this, NIFTY PSU bank hit an intraday low of 8,387.95 points, down by 7 percent as compared to the previous close of 9,019.35 points. State Bank of India plunged by 8 percent, Bank of Baroda also by nearly 8 percent, Canara Bank by 6 percent, etc

In summary, PSU bank shares fell because the Budget lacked the expected immediate FDI increase or clear reforms for PSU banks, alongside increased government borrowing and profit-taking after recent gains. 

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post Why did SBI and other PSU Bank stocks fall more than 8% today? appeared first on Trade Brains.