From Canara Bank To SBI: Why PSU Banks Fell Upto 5% Amid Rising Bond Yields

The public sector undertaking (PSU) banks such as Bank of Baroda, and Canara Bank fell as much as 5% in Friday's trading session, reacting to a sharp surge in bond yields.

India's 10-year bond yield surged to 6.9%, recording gains to its highest level since July 2024 as a result of fiscal pressures, energy shocks, and heavy debt supply pushed borrowing costs higher.

Meanwhile, the recent excise duty cut on petrol and diesel has raised concerns over fiscal deficit and long-term fiscal sustainability, invoking investor anxiety.

On the other hand, Bank of Baroda turned out to be the top loser, falling 4.8% to Rs 259.5 per share.  

Canara Bank, Punjab National Bank, Punjab & Sind Bank, and UCO Bank, all declined over 4%.

While Indian Bank, Central Bank of India, Bank of India, Union Bank of India, and State Bank of India fell in the range of 2% and 3.5%.

Amid this, the Nifty PSU Bank index dropped sharply by 3.6% to an intraday low of 8,266. This decline has dragged the index down about 3% so far in 2026 and nearly 17% from its recent peak.

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In a bid to ease pressure from rising crude oil prices—driven by the ongoing US-Israel-Iran conflict—the government on Friday cut excise duties on fuels, reducing petrol duty to Rs 3 per liter and eliminating it on diesel. Meanwhile, the windfall tax on diesel exports was raised to Rs 21.5 per liter.

While rising bond yields may have a limited direct impact on banks’ net interest margins, they could weigh on treasury performance. Higher yields typically lead to mark-to-market losses on available-for-sale and trading portfolios, creating volatility in treasury income.

Meanwhile, crude oil prices remain elevated, with Brent crude holding above $100 per barrel as traders grow increasingly sceptical about the prospects of a US-Iran ceasefire to end the month-long conflict.

Coming to the impact on centre's revenue source, its has taken a huge hit on it taxation revenues to ensure very high losses of oil companies (approximately 24 Rs/litre for petrol and 30 Rs/litre for diesel) at this time of sky high international prices are reduced.

At the same time, export tax has been levied as international prices of petrol and diesel have skyrocketed and any refinery exporting to foreign nations will have to pay export tax.