Bank of Baroda, SBI, Canara Bank, Union Bank of India and other PSU lenders have staged a sharp rally in April, with the Nifty PSU Bank index up over 11% after a brutal March sell‑off. Yet the upcoming Q4 earnings may disappoint, as the sector faces a dual drag from rising government bond yields and the RBI’s ₹‑linked $100‑million cap on net open positions in the foreign‑exchange market.

Higher 10‑year bond yields around 7.1% in March are compressing treasury income through mark‑to‑market losses on government securities, which are particularly painful for PSU banks with large bond books. At the same time, the RBI’s $100‑million rupee‑position cap curbs banks’ ability to profit from FX volatility, limiting trading gains and forcing them to book forex‑related losses. Together, these factors are likely to weigh on net profit growth even as the share‑price rebound has already priced in a relatively benign Q4.