Shares of public sector banks dropped sharply on Monday as concerns over potential Reserve Bank of India interest rate hikes and rising bond yields hit investor sentiment.
Public sector bank stocks witnessed a broad decline on Monday, September 28, 2026, as investor sentiment soured due to macroeconomic pressures. The Nifty PSU Bank index fell 2.25% to reach a low of 8,108, tracking a wider market weakness that saw the benchmark Nifty 50 index slide 1.34% to 22,833. The primary concern driving this selling pressure is the anticipation of interest rate hikes by the Reserve Bank of India during its upcoming policy meeting in October.
Inflation remains a key trigger for these market movements, with crude oil prices breaching $100 per barrel, adding to the risk of higher costs across the economy. While banks often manage interest rate cycles, the current environment of rising bond yields poses a challenge. The domestic 10-year government bond yield climbed to 7.12%, its highest level since May 2026. When bond yields rise, the market value of the fixed-income securities held by banks typically declines, which can pressure their investment portfolios.
Global factors, including US bond yields currently near 5.21%, are also influencing domestic sentiment, leading to a valuation reset in the banking sector. Furthermore, reports of deficient rainfall are raising food inflation concerns, complicating the policy outlook for the central bank. The breach of the critical 23,000 support level on the Nifty 50 index added to the technical pressure, triggering stop-loss selling across the broader market.
The decline was widespread across the public sector banking space. Bank of India and Bank of Maharashtra were among the laggards, with both stocks falling 4% during the session. Other prominent lenders, including Union Bank of India, Canara Bank, Punjab National Bank, and Bank of Baroda, recorded losses between 2% and 3%. All 12 constituents of the Nifty PSU Bank index finished the day with declines exceeding 1%. This negative trend has persisted throughout September, with some major lenders seeing their market capitalization erode by 7% to 10% month-to-date.
In operational news, a potential three-day strike by employee unions was called off following discussions with the Indian Banks Association. While the resolution ensures that daily banking services remain uninterrupted, the market reaction was muted. Given that nearly 90% of banking transactions have shifted to digital channels, industry observers note that the operational impact of such labor actions is increasingly minimal. Investors will now look toward the Reserve Bank of India’s official commentary on interest rates, inflation, and liquidity for the next direction for the banking sector.