Banks post modest treasury gains in Q1 despite softer bond yields

Banks booked modest treasury gains in Q1FY27 despite softer bond yields as they pared excess SLR holdings and sold government securities to support credit growth

Banks booked modest treasury gains during April-June this financial year even as bond yields softened through June.

 

Bankers said the decline in treasury income on a year-on-year (Y-o-Y) basis was largely due to a high-base effect as lenders had booked outsize treasury gains in Q1FY26.

 

Most large banks reported a decline in treasury income on a Y-o-Y basis for the quarter.

 

ICICI Bank, the second-largest private lender, reported treasury income of ₹151 crore during April-June. It was down 87.8 per cent from Q1 of FY26.

 

Private lender Axis Bank saw a 62 per cent year-on-year decline to ₹1,420 crore, which also dragged down its “other income” by nearly 7 per cent to ₹6,735 crore.

 

Further, banks cut their excess SLR (statutory liquidity ratio) holdings to support credit growth during the quarter, which limited the ability to capture gains from the softer yields.

 

The yield on the benchmark 10-year government bond had been hovering around 7 per cent for much of the quarter before it softened in June, after the government and the Reserve Bank of India (RBI) announced measures to attract foreign flows into the domestic debt market.

 

“While the softer-yield environment typically supports treasury gains through mark-to-market appreciation on banks’ bond holdings, most lenders were unable to fully capitalise on this move. Banks continued to sell government securities heavily during the quarter to fund robust credit growth, a strategy that meant a large part of their investment books was liquidated before yields eased meaningfully, limiting the gains that could otherwise have accrued from holding these securities through the rally,” said the treasury head at a state-owned bank.

 

The yield on the benchmark 10-year government bond fell by around 32 basis points (bps) during the quarter while those on the 15-  and 30-year government bonds declined by 50 bps and 46 bps, respectively.

 

According to the latest RBI data, scheduled commercial banks’ loan growth clocked a two-year high of 19.6 per cent at the end of June.

 

Deposit growth also picked up to 13.3 per cent although it trailed credit growth by a wide margin.

 

In the post-earnings media call, Puneet Sharma, chief financial officer, Axis Bank, said: “The trading profit was ₹1,420 crore the same quarter last year (Q1FY26) and it’s ₹537 crore the current quarter (Q1FY27). Trading profit should be looked at on a full-year basis. We did close to about 80 per cent of our full-year trading profit in the first quarter of last year.”

 

Among large public-sector banks, Punjab National Bank’s treasury income fell to ₹1,081 crore from ₹1,816 crore of the same period last financial year. This was more than a 40 per cent decline.

 

Union Bank of India saw a 54.41 per cent Y-o-Y decline to ₹645 crore in the quarter.

 

However, sequentially, treasury income has grown for banks, helping them offset mark-to-market losses incurred earlier, as yields softened during the quarter.

 

Federal Bank, which posted a 92 per cent Y-o-Y decline in treasury income from ₹265 crore, nonetheless rang up an 84 per cent sequential growth rise to ₹22 crore in Q1FY27, compared with the fourth quarter of FY26 (Q4FY26).

 

While net interest income supported the profitability of the banks during the first quarter, they witnessed a drop in “other income” from the same period last financial year due to the decline in treasury income.