Nifty PSU Bank index climbs 2% led by Bank of Baroda post robust Q2 earnings

The Nifty PSU Bank index registered a sharp rise of 2 per cent in Monday's trade, outperforming benchmark indices, which were trading largely on a flat note. The sub-index was last seen at 8,348.05, driven mainly by strong gains in Bank of Baroda (BoB) shares following the state-run lender's upbeat September quarter results.

Bank of Baroda surged 5.33 per cent to Rs 278.40 after reporting a resilient performance for the July–September 2025 quarter (Q2 FY26). The bank posted better-than-expected results, supported by higher net interest margins (NIMs), stable fee income and contained operating expenses.

According to global brokerage Nomura, BoB reported core pre-provision operating profit (PPOP) of Rs 6,250 crore, up 9 per cent sequentially and 8 per cent above its estimates. The performance was led by reported NIM expansion of 5 basis points (bps) quarter-on-quarter (QoQ), with core fee income rising 1 per cent and operating expenses remaining flat. Core NIM (excluding interest from income tax refunds) declined marginally by 5 bps, a better outcome than expected.

Nomura highlighted that significantly lower provisions -- with credit cost at 41 bps, down 29 bps sequentially -- resulted in a 10 per cent profit after tax (PAT) beat versus its projections. Loan and deposit growth stood at 6 per cent and 5 per cent QoQ, and 12 per cent and 10 per cent year-on-year (YoY), respectively, pushing the credit-deposit ratio to 83.9 per cent.

The brokerage noted that the bank created floating provisions of Rs 400 crore during the quarter to ensure a smooth transition to expected credit loss (ECL) norms, taking total floating provisions to Rs 1,000 crore, or about 0.1 per cent of total loans. BoB's management expects the overall impact of ECL norms on its capital adequacy ratio to be limited to around 75 bps, spread over five years.

Nomura raised its earnings estimates for BoB by 6 per cent for FY26 and 9–11 per cent for FY27–28, citing higher net interest income and lower credit costs. It upgraded the stock to 'Buy' from 'Neutral', with a revised target price of Rs 320.

Meanwhile, Indian Bank, Canara Bank and UCO Bank also advanced up to 3 per cent, lending further strength to the PSU Bank index.