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Banks Face Treasury Income Plunge
9 Oct
Summary
- Treasury income expected to fall by nearly 60% this quarter.
- Rising government bond yields negatively impacting investment portfolios.
- Public sector banks to face a more pronounced effect.
Banks are anticipating a substantial decrease in treasury income for the July-September quarter, with projections indicating a nearly 60% fall compared to the same period last year. Analysts estimate aggregate treasury gains to drop to ₹5,500 crore from ₹13,100 crore, marking a 58% reduction. This downturn is attributed to a sharp increase in government bond yields, which rose significantly during the quarter. The benchmark 10-year government bond yield increased by approximately 44 basis points, ending September at around 7.19%.
This rise in yields has reversed previous bond gains, limiting mark-to-market and trading profits on banks' investment portfolios. Consequently, profit growth for the September quarter is expected to be muted. The impact is projected to be more pronounced for public sector banks, which generally hold larger portfolios of government securities and previously benefited from softening bond yields. Future earnings growth will increasingly rely on core lending income, fee income, and controlled credit costs.
