Banks set to report higher treasury income in Q4FY25 on sharp drop in G-sec yields

Treasury Income

Indian banks are expected to report higher treasury income in the fourth quarter of FY25, driven by a sharp decline in government securities yields and gains from foreign exchange operations amid volatility.

These treasury gains mark consecutive quarterly gains for banks in FY25.

“Softening of the 10-year benchmark yield during FY25, coupled with a sizable Rs 2.46 lakh crore in open market operations (OMO) auctions, has significantly boosted treasury profits in Q4,” said V. Ramachandra Reddy, Head, Treasury at The Karur Vysya Bank.

Adding to this, Alok Singh, Group Head Treasury at CSB Bank, said that volatility in the Indian rupee has also helped book larger forex profits in Q4.

During the January-March quarter, yields on government securities, particularly the 10-year benchmark bond, eased by around 20 basis points (bps), driven by OMO purchases by the Reserve Bank of India (RBI), easing inflation, and a 25 bps policy rate cut.

According to the Clearing Corporation of India (CCIL), the yield on the 10-year benchmark bond 6.79 percent maturing in 2034 fell to 6.582 percent as on March 28, as compared to 6.781 percent as on January 1, 2025.

In Q4, the RBI conducted OMO purchases of G-sec worth Rs 2.50 lakh crore, injecting liquidity into the banking system, which helped banks sell securities to the central bank and earn some gains.

“PSU banks, being active participants in OMOs, have been the primary beneficiaries. It is estimated that OMO participation alone will contribute profits in the range of Rs 3,500 crore to Rs 4,000 crore,” Reddy added.

Further, yields on government securities also eased after India’s retail inflation fell below the RBI’s medium-term target of 4 percent in February to 3.61 percent, as food inflation moderated below 4 percent for the first time in nearly two years.

Additionally, heightened volatility in the Indian rupee also helped banks to earn some profits, which will get added to the banks' other income.

In Q3FY25, a few banks, such as Bank of Baroda, Canara Bank, Punjab National Bank, and Union Bank of India, had reported an increase in their treasury income.

Bank of Baroda’s treasury income rose to Rs 936 crore in Q3FY25 from Rs 410 crore in Q3FY24, while Canara Bank reported Rs 1,226 crore in Q3FY25, up from Rs 495 crore in the year-ago period.