Daijiworld Media Network – New Delhi

New Delhi, Dec 3: Public sector bank stocks witnessed a sharp decline on Wednesday after the Union government clarified that it is not considering a proposal to increase the foreign direct investment (FDI) limit in public sector banks (PSBs) from the current 20%.

The NIFTY PSU Bank index plunged over 2.5%, with all 12 constituent banks trading in negative territory. Indian Bank emerged as the biggest loser, falling around 5–6%, followed by Punjab National Bank and Bank of India, which slipped between 3–4%.

The recent rally in PSU bank shares was driven by speculation that the FDI cap might be raised to 49% — a move expected to attract substantial foreign investment into the sector. However, the Finance Ministry's categorical rejection of any such proposal triggered strong selling pressure across the banking pack.

The government also clarified that while the number of shares held by the Centre in PSBs has not fallen since 2020, its percentage shareholding has decreased in some banks due to capital raised through fresh equity issuances to meet business growth and regulatory capital needs.

Market analysts believe that the latest correction raises concerns about whether PSU banking stocks can sustain recent gains, which were largely driven by expectations of policy reforms rather than core business fundamentals.