Fall in yields on G-sec aids banks' treasury gains in Q2FY25

Treasury Income

Treasury income of most banks jumped sharply by 50-150 percent on a yearly basis in the second quarter of FY25 due to fall in yields on the government securities, according to the Moneycontrol’s analysis.

Banks that reported sharp increase in treasury gains or income 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.

Yield on the government securities, especially 10-year benchmark fell by around 25 basis points (bps) in Q2FY25. According to the Bloomberg data, yield on 10-year benchmark bond stood at 7.011 percent on July 1, as against 6.750 percent on September 30.

The fall in bond yields can be attributed to the domestic and international cues, such as a rate cut by the US Federal Reserve and expectation of stance change by the Reserve Bank of India in the near-term.

The bond yield after falling sharply has remained rangebound at 6.75-6.80 percent since mid-September.

The stability or slight uptick in the bond yield is due to a slowdown of investment by foreign portfolio investors in the Indian debt market. Outflows in the Indian debt market was due to rise in US Treasury yield despite the rate cut by the US Federal Reserves.

After the rate cut by the US Fed, yield on US Treasury papers has gone up by 61 basis points (bps) amid concerns over macroeconomic fundamentals. In addition, there are worries that the US Fed may be less inclined to cut rates, even though there is expectation of another 50 bps rate cut.

US Treasury movement is important for local markets as an increase in US Treasury yields leads to a pullback in foreign investors from emerging markets including India. FIIs are said to take the money back home to the US under these conditions.

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.

“The big change on the treasury side, there's quite a substantial pickup, which is very, helpful because last quarter was very propitious both on the fixed income as well as on the equity side and we took full advantage of it,” said P.R. Seshadri, managing director and chief executive officer of the bank said during the analyst call.

Punjab National Bank also reported a sharp gain in the treasury income to Rs 1,581 crore in Q2FY25 from Rs 264 crore a year-ago, or around 500 percent year-on-year increase.