PSU Bank Stocks Crash: SBI, IOB, UCO, BOI, PNB Fall Up To 5%; No Plan On FDI Limit Hike, Bank Merger In Focus

PSU bank stocks crashed on December 3rd after the Finance Ministry clarified that there are no plans to increase the FDI limit within the banking system of India. Nifty PSU Bank dropped by more than 2% and emerged among the top losers on NSE. All stocks, from big to small, from State Bank of India to Central Bank of India --- have declined significantly on exchanges. The latest FDI limit clarification comes at a time when investors are looking forward to the next phase of consolidation in PSU banks.

PSU Bank Stocks Crashed:

At the time of writing, Nifty PSU Bank index dropped by 2.20% or 187.65 points to trade at 8,327.25. The index is near its intraday low of 8,319.90. All stocks are in free fall.

Indian Bank is the biggest loser with 5% decline, followed by PNB with 3.5% downside. Also, Bank of India, Canara Bank, Bank of Baroda, Punjab Sind & National Bank, Central Bank of India, Union Bank of India, and UCO Bank plunged by 2% to 3%.

Additionally, banks like Bank of Maharashtra, Indian Overseas Bank and SBI dropped by 1% to 1.5%.

FDI Limit In Banks:

Questions were posed at Lok Sabha related to FDI limit and its impact on banking system. MPs asked the government whether they have proposed to hike FDI limit in PSU Banks to 49%, and which banks will be impacted from this. The questions were also related to the estimated foreign inflows and the safeguards proposed to prevent concentration of foreign ownership within the PSU Banks.

The Ministry replied saying, "No Sir (Sic.). In terms of Banking Companies (Acquisition and Transfer of Undertakings) Act 1970/80 and Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, the FDI limit in PSBs and Private Sector Banks is 20% and 74% respectively."

Furthermore, the Ministry added, in the case of private sector, 49% FDI is through automatic route and up to 74% requires government approval. Further, as per RBI master direction on acquisition and holding of shares or voting rights in banking companies, share acquisition of a bank resulting in any person owning or controlling 5% or more of the paid-up capital of the bank, requires prior approval of the RBI.

Also, the ministry revealed foreign shareholdings in PSU Banks. For instance, as of March 2025, the foreign shareholding in SBI stood at 11.07%, while in Canara Bank and Bank of Baroda the holding was at 10.55% and 9.43% respectively.

Earlier, PSU Bank index surged sharply by more than 11% in September 2025 and nearly 9% up in October due to the buzz that the government is likely to hike FDI limit in state-run banks. However, the new clarification says otherwise.

Notably, this reply also comes at a time when Finance Minister Nirmala Sitharaman has hinted towards the next phase of banks merger. The Finance Ministry is likely drawing up a roadmap for the next round of PSU bank consolidation, with a formal announcement expected in April-May. Unlike previous one-time merger packages, the new strategy is expected to be executed in two to three tranches, enabling smoother integration and better capital alignment.

Which Banks Are Not Merged Yet?

There are six banks that are currently in the PSU banking system as single entities. These are:

- Bank of India

- Indian Overseas Bank

- Central Bank of India

- Bank of Maharashtra

- UCO Bank

- Punjab & Sind Bank

List Of Big Banks Merger:

1. April 2017

SBI + State Bank of Bikaner And Jaipur + State Bank of Hyderabad + State Bank of Patiala + State Bank of Mysore + State Bank of Travancore + Bharatiya Mahila Bank

2. April 2019

Bank of Baroda + Vijaya Bank + DENA Bank

3. April 2020

Punjab National Bank + Oriental Bank of Commerce + United Bank of India

4. April 2020:

Canara Bank + Syndicate Bank

5. April 2020:

Union Bank of India + Andhra Bank + Corporation Bank

6. April 2020

Indian Bank + Allahabad Bank

Earlier, a Niti Aayog report suggested the government either privatize or restructure smaller banks like Central Bank of India and Indian Overseas Banks. The country's think tank believes that the Indian government should keep a few large state-run banks which include Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, or State Bank of India.

While the rest of the smaller state-run banks could be either opt for privatisation or merges or reducing government stake in them.