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The biggest impact of the Iran war has been on this sector in MarchThe 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.By Meghna Sen  March 27, 2026, 1:34:40 PM IST (Published)2 Min ReadThe Nifty PSU Bank Index declined as much as 3% on Friday, March 27, with all constituents trading in the red, making it the worst-performing sector for the session.

The index has now fallen in seven of the last 14 trading sessions and is on track for its sharpest monthly decline since September 2020.

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 Month1 YearNIFTY 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.Continue ReadingNote To ReadersDisclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.TagsNifty PSU BankPSU BankPSU Bank stocksshare market today