The treasury income of banks is likely to increase in the October-December quarter due to a drop in bond yields and a stable Indian rupee, experts said.
Treasury gains refer to the profit or income generated through the management of a bank's funds, investments and other financial assets. Treasury gains of banks are part of ‘other income’ in a profit and loss account.
The yield on government securities, especially the 10-year benchmark bond, fell 10-15 basis points in the October-December quarter.
“Banks are likely to report sequentially better treasury income in Q3FY2024,” said Aashay Choksey, vice president and sector head - financial sector ratings, at ICRA.
Systematix Institutional Equities said in a report dated January 10 that the other income of the ICICI Bank, HDFC Bank, Axis Bank, and Kotak Mahindra Bank will benefit from treasury gains in the October-December quarter. It said State Bank of India, the country’s largest lender, will report higher treasury gains due to a fall in bond yields.
Most banks had reported a rise in their treasury gains in the July-September quarter, experts said. According to presentations by banks, Bank of Baroda registered a Rs 725 crore treasury gain in Q2 and Canara Bank reported a gain of Rs 587 crore.
Kotak Mahindra Bank’s trading and marked-to-market gains were Rs 150 crore in the July-September quarter compared to a loss of Rs 63 crore a year earlier.
Also read: Banks’ Q3 FY24 earnings: Top five things to watch out for
Why bond yields fell
In the October-December quarter, bond yields rose initially after the Reserve Bank of India said it may conduct open market operation (OMO) sales of government securities. The 10-year benchmark bond surged about 15 basis points following the announcement.
Later, as expectations waned, the yield started declining. But this was attributed to the easing US Treasury yield and the fall in crude oil prices, along with inflows from foreign portfolio investors in government securities.
During Q3, the yield on 10-year US Treasuries fell to 3.88 percent on December 29 from 4.69 percent on October 2.
Following this, the 10-year benchmark bond yield, which was at 7.2327 percent on October 3 before the RBI’s monetary policy, reached 7.34 percent. It eased to 7.1754 percent by the end of December, as per data compiled the from Clearing Corporation of India.
Experts said state-owned lenders are likely to post higher treasury gains in the October-December quarter due to their major holdings of government securities in compliance with statutory liquidity ratio (SLR) requirements. A bank’s SLR is expressed as its investments in central, state government and other approved securities as a percentage of its net demand and time liabilities.
“Given the larger stock of G-Secs held by PSU banks, partly attributable to greater scale as well as comparatively lower credit-to-deposit ratios than private sector banks, absolute treasury gains would, in all likelihood, be higher for public sector banks,” Choksey said.
In the July-September quarter, SBI, Indian Bank, Canara Bank, and Union Bank of India, among others, had a higher share of their investment in SLR securities.
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