Shares of public sector banks extended their impressive bull run for the seventh consecutive trading session on Tuesday, January 6, defying a range-bound broader market. This sustained rally underscores robust investor confidence in the state-owned banking sector.
Index Soars to Unprecedented Heights
The benchmark Nifty PSU Bank index climbed 1.32% to seal the day at a fresh all-time high of 8,856 points. This latest gain builds on a 0.5% rise in the previous session, taking the index's cumulative advance over the past week to nearly 7%. In a show of broad-based strength, every single one of the index's 12 constituent stocks ended in positive territory.
Union Bank of India led the charge, surging 3% to reach an intraday peak of ₹167 per share. It was closely followed by other major players including Bank of India, State Bank of India (SBI), Bank of Maharashtra, Canara Bank, Indian Bank, and UCO Bank, all of which posted gains exceeding 1%. This rally wasn't confined to PSU banks alone; the broader Nifty Bank index also touched a historic high of 60,437 points on Monday, highlighting the sector's overall resilience.
Drivers of the Banking Bull Wave
The optimism gripping the street is primarily fueled by mounting expectations of a robust performance from banks in the December quarter (Q3 FY26). This sentiment is rooted in a visible pickup in system-wide credit growth, as evidenced by the recent business updates released by several key lenders. These updates consistently showed an improvement in gross advances.
Supportive macroeconomic policies have played a crucial role. The Reserve Bank of India (RBI) reduced the key policy rate by a total of 125 basis points up until December. These repo rate cuts, combined with earlier measures like GST rationalization and income tax reductions, have collectively spurred credit demand in the economy.
The data confirms the trend. As per the latest fortnightly statistics (as of December 15, 2025), system credit growth accelerated to 12% year-on-year, up from 11.5% YoY recorded on November 28, 2025. Meanwhile, deposit growth saw a moderation to 9.4% YoY from 10.2%. Furthermore, RBI's sectoral credit data for November 2025 indicated an uptick in overall system credit growth to 11.4% YoY, driven by stronger momentum in industry, retail, and services segments, as noted by domestic brokerage JM Financial.
Brokerages Bullish on Profitability and Stability
Leading brokerage firms have reinforced the positive outlook. Systematix Institutional Equities anticipates an improvement in bank profitability for Q3, citing sustained sequential growth in advances, higher fee income, and lower credit costs. The brokerage noted that healthy momentum in advances has continued this quarter, while stress in the unsecured retail segment is moderating. It expects this growth to be sustained by lower interest rates, benefits from GST cuts, and higher tax limits.
Echoing this view, JM Financial forecasts a solid December quarter for the banking sector, propelled by stronger credit momentum, easing pressure on the cost of funds, and continuing improvements in asset quality. Adding to the confidence, the RBI's recently released bi-annual Financial Stability Report (FSR) points to encouraging trends in the headline asset quality numbers across India's financial sector.
Disclaimer: The views and investment recommendations expressed by individual analysts and brokerages are their own and not endorsed by the publication. Investors are strongly advised to consult with certified financial experts before making any investment decisions.
