Treasury incomes of banks surge on bond yield pullback

Indian banks’ treasury incomes rose significantly in the June quarter due to a pullback in bond yields.

The country’s largest lender State Bank of India (SBI), for example, reported profit on investments to the tune of Rs 3,847 crore the first quarter of of FY24, more than double from its Q4FY23 profit of Rs 1,800 crore and a mark-to-market loss of Rs 6,549 crore during Q1FY23. Country’s largest private lender HDFC Bank also reported its treasury gains at Rs 552 crore during Q1FY24 as against a net loss of Rs 38 crore during Q4FY23 and a loss of Rs 1,077 crore during Q1FY23.

According to Venkatakrishnan Srinivasan, founder of financial advisory firm Rockfort Fincap LLP, the 10-year government bond was trading with an indicative range of 7.27% to 7.46% between January-March and after the Reserve Bank of India (RBI) opted to pause the repo rate hike cycle in April, the yields plunged from 7.30% levels to 6.97% levels slowly between April-May.

“Mostly the banks have made huge treasury profits during this period as the 10-year benchmark bond yields fell to 6.97% from the peak levels,” he said.

Karan Gupta, Director & Head Financial Institutions, India Ratings & Research, shared similar views saying the treasury gains have been made primarily on account of a pullback of yields.

“We closed March 31st at around 7.3% yields and at 7.12% as of June end, as a result of which bank tend to make mark-to-market gains. And the same trend was in reverse last year as yields were moving up forcing banks to mark losses,” he said.

Analysts added that since banks’ treasury losses in the previous fiscal led to a dent in their overall profitability, they are now more focussed on growing their core net interest income (NII) and other income excluding treasury gains or loss more to churn higher profits.

Further, during a post earnings call, Bank of Baroda MD, CEO Debadatta Chand said that banks’ treasury gains will continue to rise if there are rate cuts in the current fiscal by the central bank. According to Chand, while treasury profits were not very high during previous fiscal, the treasury income growth in absolute terms was still very robust.

“As of today rate outlook looks very stable as far as India is concerned but there are global headwinds in terms of regulators increasing their rates…(if there is) any rate reversal happening this year then trading income in terms of profit will go up…,” Chand said.

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