Bank Nifty Scales Fresh High: What's Driving Banks Higher?

Bank Nifty continued its stellar momentum in calendar year 2025 by hitting yet another fresh high on Monday's trade. The index reached intraday high of Rs 58,913 and is currently trading with gains of 0.60%.

On a year-to-date basis, Bank Nifty has given returns of more than 15%, which improves to almost 17% on a year-on-year basis - making the index a significant outperformer compared to Nifty50.

Monday's gains in Bank Nifty is primarily led by the PSU Banking Index, which is trading with gains of more than 1.7% amid renewed interest in mergers among PSU lenders.

The stellar rally in the banking index can be traced back to an excellent September quarter, where banks emerged as one of the best-performing sectors.

In a quarter where most major sectors were hit by single-digit growth, tariff woes and geopolitical drama, Indian banks showed impressive resilience, even putting an end to asset quality woes that were feared in previous quarters.

In addition, expectations of a stable interest rate cycle and resilience in credit growth have added to improved sentiment around banks.

One of the key drivers of the upmove in Bank Nifty has been the momentum in the PSU Bank Index today, which comes on the back of the government reportedly working on a roadmap for the next round of PSU bank mergers, with an announcement likely as early as April-May next year.

Shares of State Bank of India, Indian Overseas Bank, UCO Bank, and Punjab & Sind Bank led gains on merger buzz.

Not to mention, PSU lenders ended the September quarter reporting better performance compared to its private peers while Reserve Bank of India's easing of trade finance rules for exporters has also aided sentiment.