Stocks such as Bank of Baroda, Canara Bank, Indian Bank, Bank of India and UCO Bank fell between 3% and 4.5%.India’s 10-yr yield nears 7%
The weakness has been driven largely by a sharp rise in government bond yields, with India’s 10-year yield nearing the 7% mark.
The spike in yields comes amid a surge in global crude oil prices, which have climbed towards $105 per barrel due to escalating tensions between the US and Iran in West Asia.
Higher yields are particularly negative for PSU banks, which hold large government securities portfolios. While a portion is classified under Hold-to-Maturity (HTM), a meaningful share sits in the Available-for-Sale (AFS) category.As yields rise and bond prices fall, these banks face mark-to-market losses on their AFS book, impacting treasury income and overall profitability.
According to estimates by IIFL Capital, rising yields could weigh on bank balance sheets. A 25 basis point increase in short-term yields may impact profitability by 0.1-0.7%, while a 50 basis point rise in medium-term yields could shave off 0.3-0.6% from net worth.
Stress scenarios also indicate that PSU banks are more sensitive to margin and credit cost pressures. A 10 basis point decline in net interest margins (NIMs) could lead to a 6-8% hit to profits, while a similar increase in credit costs may reduce profits by 5-6%.
Top PSU Banks Returns
|
|
1 Month | 1 Year |
| NIFTY 50 | -8.59% | -0.77% |
| NIFTY PSU Banks | -13.15% | +39.69% |
| SBI | -12.15% | +39.08% |
| PNB | -15.51% | +18.72% |
| BOB | -15.83% | +23.94% |
| Canara Bank | -14.02% | +56.58% |
| Union Bank | -10.54% | +49.99% |
The recent sell-off has pushed the PSU Bank index into a technical correction, with the index down about 16.5% from its peak of 9,918 hit on February 26, 2026.
Despite the correction, valuations remain elevated, with the index trading at around 1.4x price-to-book compared to its five-year average of 0.94x.
