Bank credit rose 16% while deposits increased 13.4% year-on-year as of the fiscal year ended March 31, 2026, according to latest RBI data. Total deposits stood at ₹267.8 lakh crore, while bank credit, or advances, was at ₹219 lakh crore. Investments grew 4.7% to ₹71.4 lakh crore, showing a more measured approach to balance-sheet management by banks. As reported by The Economic Times, in absolute terms, deposits rose ₹31.7 lakh crore while bank credit increased ₹30.1 lakh crore on a year-on-year basis. Deposit and credit growth typically pick up towards the end of the financial year as companies park surplus cash, governments step up spending and banks push year-end lending.
PSU banks have witnessed a significant bounce back in April 2026, with the NIFTY PSU Bank index rising 11.9% compared to 8.5% rise in benchmark NIFTY50 index, according to Upstox. This recovery comes after PSU banks declined between 18% and 23% in March 2026, with the NIFTY PSU Bank index falling 19.8% - their steepest monthly decline since September 2020. Major PSU banks like SBI, Bank of Baroda, Punjab National Bank declined between 18% and 23% in March, but have shown strong recovery with SBI up 9.1%, Bank of Baroda gaining 12.3%, and PNB rising 13.1% in April. All PSU Bank stocks have shown recovery of 9 to 18% compared to steep fall in previous month, though experts question whether this short-term rally will sustain after Q4 earnings are announced.
In Q4FY26, PSU banks are likely to face a dual impact of rising government bond yields and imposition of a $100-million cap by RBI on rupee position in the forex market, as reported by Upstox. Bond yield on India's 10-year Government bond has climbed to around 7.1% in March 2026, which is the highest level since May 2024, indicating tightening conditions in the domestic debt market. Experts believe a 25 basis point rise in bond yield could have up to 1% impact on profitability, as PSU banks hold large portions of assets in government bonds in Available For Sale (AFS) form, leading to mark-to-market losses when bond prices fall. The RBI's surprise announcement in the last week of March to cap net open positions on rupee at $100 million will require banks to bring down their onshore open positions, potentially causing mark-to-market losses of ₹4,000 crore for all banks combined.
The RBI's surprise announcement to cap net open positions on rupee at $100 million in the foreign exchange market comes after the rupee hit a record low of 95.22 against the dollar, as reported by Upstox. This new RBI rule will require banks to bring down their long dollar positions in the onshore market, which some dealers guess could be as high as $40 billion, forcing banks to unwind their positions and causing mark-to-market losses. RBI has rejected banks' plea to spread provisions for likely mark-to-market losses from treasury operations in the fourth quarter, according to Economic Times. Banks may have accounted for these losses in FY26 and may not be allowed to carry forward to next year, adding to the immediate impact on treasury operations.
Small Finance Banks (SFBs) achieved loan portfolio growth of over 20% in fiscal year 2026, significantly outperforming the broader banking sector's 13.8% credit growth, according to Systematix. However, tighter liquidity is raising funding costs, and while SFBs are shifting to secured lending, microfinance asset quality is a concern. The sector's valuations have hit historic lows, with Equitas SFB's negative TTM P/E of -111.00 indicating recent losses, while its normalized P/E stands at roughly 41.42. Meanwhile, Ujjivan SFB's P/E is around 23.76-26.00, similar to AU Small Finance Bank's 25.6x P/E ratio. Despite growth forecasts of 31% increase in net interest income and 74% in profit after tax, structural challenges and operational hurdles within the sector warrant caution.
