Banks’ treasury income to remain muted in Q3 on narrow yield movement of govt securities

Treasury Income

Treasury income of banks is likely to remain muted in third quarter of the current financial year due to narrow movement of yield on government securities throughout the quarter.

This, after the banks have reported a sharp jump in the treasury income in second quarter of current fiscal year.

“As the yield on the government securities moved in the narrow range, it is expected that Indian bank’s treasury income to remain muted. The muted growth in treasury gains will be after the bumper gains in the Q2, where the bond market has witnessed 25 bps reduction in yield,” said Sanjay Agarwal, senior director of banking, financial services and insurance at CareEdge.

The yield on the government securities have moved in 2-4 basis points (bps) range between October and December, which is expected to keep income from these securities lower for the banks.

Usually, when the bond yields falls, prices on the bond increases leading to increase in profitability for banks in treasury. Whereas, when it moved in narrow range, it keeps treasury gains lower.

According to the Clearing Corporation of India Ltd (CCIL) data, yield on 10-year benchmark bond stood at 6.76 percent on December 31, as compared to 6.750 percent as on September 30.

The yields have moved in a narrow range due to low demand from foreign portfolio investors and stable domestic conditions. Further, sluggish growth and widened merchandise trade deficit, and rising US Treasury yield kept yields on government securities in the tight range.

In the second quarter of current fiscal year, banks have reported a sharp jump in their treasury income by 50-150 percent, on back of easing bond yields.

Banks that reported sharp increase in treasury gains or income in Q2FY25 are Bank of Baroda, Canara Bank, Punjab National Bank, Union Bank of India, UCO Bank, Bank of Maharashtra, Central Bank of India, YES Bank, and South Indian Bank, as per the analysis.

In the July-September quarter, treasury income of YES Bank increased to Rs 65 crore, from Rs 19 crore in a year ago period, which translated to an increase of over 200 percent. South Indian Bank reported treasury income of Rs 106 crore in the second quarter of the current financial year as compared to Rs 37 crore in a year ago period, up by 186 percent.

Agarwal further said that elevated treasury gains had led to significantly profitability for banks in second quarter. However, this source is likely to be not available this quarter.