PSU Bank Stocks Rally Up to 3% as Government Announces ₹18,100 Cr Credit Guarantee Scheme

Public sector bank stocks saw strong buying interest on Wednesday, 6 May 2026, after the Union Cabinet cleared a new emergency credit guarantee scheme for MSMEs, airlines and businesses affected by the ongoing West Asia situation.

The Nifty PSU Bank index rose 2.84% to 8,679.15 during the session, outperforming the broader banking space. The Nifty Bank index also gained during the session, rising 2.63% to 55,981.05, while the Nifty Private Bank index climbed 2.42% to 26,700.75. All 12 constituents of the index traded in positive territory.

Among individual stocks, Canara Bank shares gained 2.78% to ₹138.05 at 3:30 pm IST. Punjab National Bank rose 2.23% to ₹110.30, while Bank of Baroda climbed 2.92% to ₹271.10. Indian Bank shares also moved higher, gaining 2.09% to ₹866.50.

The rally came after the Union Cabinet approved ECLGS 5.0 with an outlay of ₹18,100 Cr.

What Is ECLGS 5.0 And Why Are PSU Banks Reacting?

The Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 was approved by the Union Cabinet on Tuesday after market hours. The scheme is expected to facilitate additional credit flow worth ₹2.55 trillion across MSMEs, airlines and other businesses facing working capital stress.

According to Information and Broadcasting Minister Ashwini Vaishnaw, the scheme has been designed to support sectors facing liquidity pressure because of disruptions linked to the West Asia crisis.

Under the scheme:

• MSMEs can avail additional loans of up to 20% of peak working capital utilisation, capped at ₹100 Cr

• Airlines can borrow up to ₹1,500 Cr

• MSME loans will carry 100% government guarantee cover

• Non-MSME loans, including airlines, will have 90% guarantee cover

• Most sectors will receive five-year loans with a one-year moratorium

• Airlines will receive seven-year loans with a two-year moratorium

The scheme includes a dedicated ₹5,000 crore allocation for the aviation sector.

Why Could PSU Banks Benefit More From The Scheme?

PSU banks and larger lenders with meaningful MSME exposure could see stronger loan growth under ECLGS 5.0.

The guarantee structure is expected to reduce downside risk for lenders in relatively vulnerable sectors. At the same time, analysts said repayment behaviour after the moratorium period and asset quality trends will remain key monitorables.

PSU banks are seen as key beneficiaries because of their larger presence in MSME lending compared with several private lenders.

Also Read - Post-Market, 6 May 2026: Sensex And Nifty 50 Witness Strong Rally

What Should Investors Track Going Ahead?

The scheme is expected to support fresh lending activity, particularly in the MSME and working capital segments.

The government guarantee does provide a safety cushion for lenders on incremental loans. Even so, asset quality will remain an important monitorable, especially if global uncertainties continue to affect business activity.

For now, investors appear encouraged by the possibility of stronger credit growth for PSU banks with sizeable MSME exposure.

Sources:

Business Standard

Moneycontrol