Why did Indian Bank, PNB, Bank of India and other PSU banks crash up to 6%? Explained

State-owned banks came under fresh selling pressure in Wednesday’s session, with all 12 constituents slipping sharply as sentiment weakened after the government clarified that it is not considering a proposal to raise the foreign direct investment (FDI) limit in public sector banks.
Indian Bank led the decline, tumbling 6% to ₹807 apiece, while Punjab National Bank, Bank of India, Canara Bank, Bank of Baroda, Central Bank of India, Union Bank, Punjab & Sind Bank, and UCO Bank were also trading lower, down up to 2%.
Reflecting the broad weakness, the Nifty PSU Bank index fell 3% to an intraday low of 8,264, slipping nearly 5% from its recent high of 8,665.
FDI cap speculation put to rest after government clarification
Earlier in October, reports had emerged suggesting that the government might consider increasing the FDI limit in public sector banks to 49% from the current 20%. The speculation triggered a strong rally in PSU bank stocks, pushing the Nifty PSU Bank index to fresh record highs.
However, the government has now clarified that no such proposal is under consideration.
Minister of State for Finance Pankaj Chaudhary stated on Tuesday that the government is not evaluating any plan to raise the FDI limit. Responding to a written question in the Rajya Sabha on whether the government had proposed increasing the FDI cap in PSBs to 49%, Chaudhary replied in the negative.
Replying to another question, Chaudhary said the number of shares held by the Union Government in the 12 public sector banks has not declined since 2020.
However, he added that although the number of shares held by the government has remained unchanged, its percentage shareholding has declined in some banks due to capital raised through fresh share issuances by the banks.
The FDI limit in PSBs and private-sector banks stands at 20% and 74%, respectively. In private-sector banks, up to 49% FDI is permitted through the automatic route, while investments beyond 49% and up to 74% require government approval.
Chaudhary further explained that banks raise fresh capital to meet business growth needs and maintain regulatory requirements. Such fundraising reduces the fiscal burden on the government and strengthens banks’ balance sheets.
Banks are also required to comply with the minimum public shareholding requirement of 25% under Rule 19A of the Securities Contracts (Regulation) Rules, 1957, and Regulation 38 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, he added.
(With inputs from PTI)
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