SBI, Canara Bank and other PSU banks rebound sharply in April, but these two factors could impact Q4 earnings

State Bank of India, Bank of Baroda, PNB, Union Bank and other PSU banks have bounced back strongly in April 2026. NIFTY PSU Bank index rose 11.9% so far this month compared to 8.5% rise in benchmark NIFTY50 index and 19.8% fall in March month.

PSU Bank stocks witnessed their steepest fall since the start of the US-Israel-Iran war. NIFTY PSU bank index declined in 12 out of the 20 trading sessions of March, 2026 and saw its sharpest monthly decline since September 2020. Major PSU banks like SBI, Bank of Baroda, Punjab National Bank declined between 18% and 23%.

This sharp decline comes because of multiple factors like surge in India’s 10-year Government bond yield, broad-based market sell-off due to geopolitical tensions and rise in crude oil prices as well as consistent sell-off by the foreign institutional investors (FIIs).

As seen from the above table, all PSU Bank stocks have shown a smart recovery of 9 to 18% compared to steep fall in previous month. However, will this short-term rally sustain after Q4 earnings are out?

In Q4FY26, PSU banks likely to face dual impact of rising government bond yield and imposition of a $100-million cap by RBI in net open position in rupee in the foreign exchange market. Both these scenario could cause treasury income loss for the banks especially government-owned PSU banks which has large exposure to bonds.

Two key challenges for PSU Banks in Q4FY26

This situation negatively impacts the banking sectors, especially PSU Banks like State Bank of India, Bank of Baroda, Punjab National Bank and others because they hold a large portion of their assets in government bonds in Available For Sale (AFS) form which leads to mark-to-market losses.

When bond prices fall, the value of their holdings decreases, leading to mark-to-market (MTM) losses for the banks, which affects their treasury income and impacts their profitability. Experts believe a 25 basis point rise in bond yield could have up to 1% impact on profitability. As a result, PSU banks could see softness in treasury gains and overall profitability due to higher bond yields during the March quarter.

This new RBI rule will require banks to bring down their long dollar positions in the onshore market, which some dealers guess could be as high as $40 billion. This move will force banks to unwind their positions, causing mark-to-market losses and impact treasury gains. As per CNBCTV 18 report, loss for all banks put together (foreign, private and PSU) would be ₹4,000 crore. Besides this, banks may have accounted for these losses in FY26 and may not be allowed to carry forward to next year.

Another report by Economic Times states that RBI has rejected banks’ plea to spread provisions for likely mark-to-market (MTM) losses from treasury operations in the fourth quarter.

Treasury income, which includes trading gains from government securities and investments, contributes to overall profitability of banks. In recent quarters, treasury gains for state-owned banks have surged and made up between 22 to 35% of other income. Treasury income accounted for over 26% of Q3FY26 net profit in case of Punjab National Bank, while Central Bank of India reported 35% jump in treasury income during the same period.

Overall these two scenarios could impact the treasury gains of the banks. But amid the chaos, PSU banks have come out with their quarterly business updates for the fourth quarter which indicates the core business of the banks remain unaffected. Most PSU banks reported robust growth in gross advances and deposits.

Disclaimer:

Investments in the securities market are subject to market risk. Read all the related documents carefully before investing. The stock discussed in this article is only for educational purposes and not a buy or sell recommendation. Investors are advised to conduct their own analysis and risk due diligence before trading and investing in the stock market.