Treasury income's contribution to bank P&L's in Q3 to be modest: Analysts

Banks are likely to benefit from treasury income, albeit in a modest way, from lower yields on bond portfolios at the close of December 2023 over the previous quarter.

The widening of the spread on state-government paper over central government bonds may work as a dampener, according to treasury executives.

“Banks will benefit from lower yields at the end of December as against September end. The two months -- October and November -- were adverse with an uptick in yields. The change in pattern came in December 2023 after the US Fed indicated rate cuts in early 2024 than anticipated earlier,” said Sujit Kumar, economist, Union Bank of India.

Seconding him, a senior analyst with a rating agency said the Reserve Bank of India’s (RBI’s) October policy had set a hawkish tone, given the concern on inflation. But at the close of the quarter, the retail inflation trajectory was comforting.

According to the Bloomberg data, the bond yield on 10-year central government paper was around 7.22 per cent at the end of September and it declined to 7.17 per cent at the end of December 2023.

“Yields went up primarily because of what happened in October. Because of the OMO (open market operations) statement from the (RBI) governor in the October Monetary Policy Committee meeting, yields moved up by 15-16 bps on that day. A lot of stop losses were hit, and people had to exit positions. Banks started the quarter with losses. While some losses have been recouped, I don’t think the entire amount has been wiped out,” the treasury head at a private bank said.

Gopal Tripathi, head, treasury and capital markets, Jana Small Finance Bank, said the contribution from treasury to the bottom line of banks was expected to be marginal in the December quarter 2023 over the September quarter.

Analysis by CARE Ratings showed public-sector banks reported treasury income of Rs 5,859 crore in Q2FY24, up from the Rs 3,682 crore in the same quarter last year. On the other hand, private-sector banks reported treasury income of Rs 1,618 crore in the quarter against a low base of Rs 92 crore in the same period a year ago.