Why did PSU bank stocks fall after the Union Budget on February 1, 2026?

PSU bank stocks tumbled due to fears that the government's record borrowing plan of Rs 17.2 lakh crore for FY2026-27 would increase bond yields and cause mark-to-market losses on their bond portfolios.

What was the impact of the Budget's borrowing plan on the Nifty PSU Bank index?

The Nifty PSU Bank index reflected the broad-based weakness by closing down 5.6% in the special Sunday trading session following the Budget announcement.

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PSU Banks Tumble on Budget Borrowing Fears

Q: What is the government's capital expenditure plan for FY2026-27?

The Union Budget 2026 proposed a sharp increase in capital expenditure to Rs 12.2 lakh crore for FY2026-27, continuing its infrastructure-led growth strategy.

1 Feb

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Summary

PSU bank stocks fell sharply after a record borrowing plan.
Investors feared rising bond yields and mark-to-market losses.
Bank of India plunged nearly 9% in the Sunday session.

PSU Banks Tumble on Budget Borrowing Fears

Public sector bank (PSU) stocks experienced a sharp decline on Sunday, February 1, reacting to the Union Budget's announcement of a record borrowing plan. The government intends to borrow Rs 17.2 lakh crore in FY2026-27, raising concerns among investors about potential upward pressure on bond yields.

Rising bond yields can lead to mark-to-market losses for banks on their bond portfolios. This risk was aggressively priced in by investors during the special Sunday trading session, even though bond and currency markets were closed. The Nifty PSU Bank index fell by 5.6%, with Bank of India being the top loser, down nearly 9%.

The Budget also detailed a significant increase in capital expenditure to Rs 12.2 lakh crore for FY2026-27, continuing the focus on infrastructure-led growth. The government projected a GDP growth of 7.4% and a fiscal deficit of 4.4% for the current fiscal year, signalling a commitment to fiscal consolidation amidst elevated public spending.