Easing yields on government securities over the last few weeks are likely to help banks increase the treasury income in the first quarter of the current financial year, experts said.
According to market experts, most banks have higher amount of securities in Statutory Liquidity Ratio (SLR) than mandated by the Reserve Bank of India (RBI), which will help them to post higher treasury gains.
Whenever the yield on government securities goes down, prices go up, and vice-versa. This helps banks to increase their treasury income, which is part of other income.
“Yes, easing of yields benefit bank treasuries to show relatively good profits in Q1FY25, if the easing bias continues,” said V Ramachandra Reddy, Head Treasury, The Karur Vysya Bank.
However, Rajeev Pawar, Head of Treasury of Ujjivan Small Finance Bank, said treasury income is dependent on the risk positions that a bank is running. “It will vary from bank to bank.”
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Why yields fell
Since April, yield on government securities fell around 10-15 basis points (bps) due to multiple factors, such as easing inflation print, Brent crude oil prices, and later, higher dividend transfer announced by the Reserve Bank of India (RBI).
Currently, the yield on the 10-year benchmark 7.10 percent 2034 bond is at 6.9713 percent, which is sharply lower than 7.1249 percent, on May 2. The new 10-year benchmark bond was first auctioned on April 5, in which the central bank set a 7.10 percent coupon.
On the other hand, the old 10-year benchmark 7.18 percent 2033 bond was trading at 7.0255 percent on May 27, as compared to 7.1501 percent on April 8.
India's headline retail inflation stayed largely unchanged at 4.83 percent in April, according to data released by the Ministry of Statistics and Programme Implementation on May 13. The Consumer Price Index (CPI) inflation in March was at a 10-month low of 4.85 percent.
The higher-than-expected dividend announced by the RBI also helped yields to come down. On May 22, RBI’s Central Board of Directors has approved the transfer of Rs 2.11 lakh crore as surplus to the government for financial year 2023-24.
The central bank said surplus transfer to the government for financial year 2023-24 is based on the Economic Capital Framework (ECF) adopted by the RBI on August 26, 2019, as per the recommendations of the Bimal Jalan committee.
The sharp jump in surplus amount could be attributed to higher income from the forex holding of the central bank, among other factors.
The dividend, transferred in 2024-25, is sharply higher than what the government had originally expected. The surplus transfer is for the fiscal year 2023-2024, but will reflect in the government’s account in the fiscal year 2025.
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Treasury income in Q4FY24
According to an analysis by Moneycontrol, banks that reported treasury gains or income are Bank of Maharashtra, Equitas Small Finance Bank, Kotak Mahindra Bank, AU Small Finance Bank, Yes Bank, Axis Bank, South Indian Bank, Canara Bank, and Central Bank of India.
Yes Bank reported investment gains and treasury income of Rs 15 crore in the January-March quarter, compared with a Rs 97 crore loss a year earlier.
Puneet Sharma, chief financial officer of Axis Bank, said the lender had trading profit and other income of about Rs 1,128 crore, an addition of Rs 743 crore sequentially.
“A large part of that gain has come through our debt capital market, our treasury trading performance and MTM (mark to market), a reasonable size reversal of MTM losses booked in the last quarter,” Sharma added.
South Indian Bank’s income from treasury and forex stood at Rs 80 crore in Q4, compared with a loss of Rs 50 crore in Q4 of FY23, as per the bank’s investor presentation.
Treasury income of the Central Bank of India grew to Rs 365 crore in Q4, from Rs 128 crore a year earlier.
AU Small Finance Bank’s treasury income stood at Rs 7 crore in Q4, as against Rs 1 crore in Q4 of FY23.
Equitas Small Finance Bank, Kotak Mahindra Bank, and Bank of Maharashtra reported treasury gains of Rs 27 crore, Rs 138 crore, and Rs 149 crore, respectively.
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