Interim Budget 2024-25: Banks likely to see heavy trading gains in Q4

The yield on the benchmark 10-year government bond declined by 12 basis points (bps) in 2024 from 7.17 per cent to 7.05 per cent on February 1, 2024

Commercial banks are likely to post heavy trading profits in the January-March period after a lacklustre third quarter, as government bond yields fell in response to a lower than expected fiscal deficit target for FY25 announced in the interim Budget, translating into lower market borrowing.

“The fall in bond yields will lead to some treasury gains in the fourth quarter. However, in order for it to have a significant impact, the move should be followed by a rate cut,” said an analyst who did not wish to be named.

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The yield on the benchmark 10-year government bond declined by 12 basis points (bps) this year, from 7.174 per cent in December 2023 to 7.058 per cent on February 1, 2024. The benchmark yield fell up to 7.04 per cent during the day.

“The government’s borrowing plan for FY25 has decreased to Rs 14.1 trillion, as compared to Rs 15.1 trillion in FY24. This reduction is expected to enable banks to lend more next year due to improvement in overall liquidity,” said Sunny Agrawal, head of fundamental equity research, SBI Securities Ltd.

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“Furthermore, it will lead to an increase in the value of government bonds, which would result in extra profits for state-owned banks. As the PSU (public sector undertaking) banks already have a position in the bond, it will incur MTM (mark to market) gain on the investment book,” Agrawal said.