Bearish Risk: Rising Bond Yields to Hit PSU Banks Hard in Q1 FY25

Analysts are warning that Public Sector Undertaking (PSU) banks are likely to face increased pressure in the June quarter (Q1 FY25) due to rising bond yields. This pressure stems from potential treasury losses as the value of their bond holdings declines when yields increase, especially if elevated oil prices persist.

This is significant for traders because PSU banks typically hold a larger proportion of government securities compared to private banks, making them more vulnerable to interest rate fluctuations. Weaker Q1 results from PSU banks could drag down the overall banking index, despite strong performance from private sector counterparts.

Major PSU banks like State Bank of India (SBIN), Punjab National Bank (PNB), and Bank of Baroda (BANKBARODA) are likely to see negative impact on their profitability due to treasury losses. This could lead to downward revisions in their earnings estimates and stock price corrections, potentially creating a divergence in performance between PSU and private banks.

Traders should closely monitor crude oil prices and the trajectory of Indian government bond yields. Any sustained increase in yields or oil prices will exacerbate the pressure on PSU banks. Watch for management commentary from these banks regarding their treasury positions and outlook during their upcoming earnings calls.

• •Analysts warn PSU banks could face sharper pressure in the June quarter.
• •Pressure is linked to elevated oil prices keeping bond yields high.
• •Rising bond yields hurt banks through treasury losses (as per online context).
• •Risk flag: Unexpected decline in crude oil prices easing bond yield pressure
• •Risk flag: RBI intervention to stabilize bond yields