Explained — Why PSU Banks sold off sharply after the Union Budget 2026

Shares of India's state-run lenders are selling off on Sunday, February 1, after the Union Budget 2026 by Finance Minister Nirmala Sitharaman.

Shares of Bank of India are the top losers within the PSU Bank index, trading with losses of 6%, while those of Indian Bank, Bank of Maharashtra, and Bank of Baroda are also trading with losses of 5% to 6%.

Other constituents of the PSU Bank index are also down between 2% to 5%.

The Central Government will borrow a record ₹17.2 lakh crore from the market in fiscal year 2026-2027.

The figure is higher than expected, with estimates for gross market borrowing for FY27 pegged at ₹16.3 lakh crores, as per a CNBC-TV18 poll and ₹16.5 lakh crores as per a Reuters poll.

Net borrowing for FY27, which excludes interest payments, is pegged at ₹11.7 lakh crores, in line with expectations.

Higher borrowing will result in a spike in bond yields, which in-turn is a negative for PSU Banks, thereby triggering the sell-off. The higher yields would lead to treasury losses in the Mark-to-Market portfolio of these lenders.

Bond markets are shut for trade unlike the equity markets which are trading. Trading will resume in the currency markets on Monday.

All constituents on the PSU Bank index are trading with losses on Sunday after the Budget speech. The PSU Bank index had also gained over. The PSU Bank index had gained over 30.5% in 2025.