The Nifty PSU Bank Index surged nearly 4% on Friday, mirroring broader gains in the broader markets. This came after a 3% fall in the previous session.

Nifty 50 and Sensex were also trading in the green as sentiment improved amid easing crude oil prices and the softening of the US Dollar.

Israeli Prime Minister Benjamin Netanyahu indicated that Israel would avoid targeting energy infrastructure, suggesting the conflict could end sooner than expected. Meanwhile, US President Donald Trump ruled out deploying ground troops, saying he is “not putting troops anywhere,” easing fears of further escalation. 

Oil prices fell to around $107 per barrel from $119 in the previous session.

At 01:00 PM, Bank of Maharashtra was trading 4.44% higher, followed by Indian Overseas Bank, Bank of India, Canara Bank, Union Bank of India, Indian Bank, Bank of Baroda and Punjab National Bank. All constituents of the Nifty PSU Bank index were in the green.

India imports more than 85% of its crude oil. When prices fall, it triggers a chain reaction that is ultimately beneficial for banks, and the markets might be pricing that in. 

High oil prices lead to “imported inflation.” When inflation stays high, the Reserve Bank of India (RBI) cannot cut interest rates; in fact, it may be forced to hike them. Lower crude prices cool down inflation expectations, giving the RBI room to maintain a “dovish” or neutral stance. This causes the “yield” on government bonds to drop.

PSU banks hold trillions of rupees in these bonds, and even a 0.10% drop in yields adds hundreds of crores to their “Other Income” through mark-to-market (MTM) gains.