Most banks take a hit on Q1 treasury income amid RBI’s new investment portfolio norms

Treasury Income

The majority of banks reported a fall in treasury income in the first quarter of the current financial year as they had to transfer generated gains to general reserves following the transition to revised bank investment portfolio norms.

According to a Moneycontrol analysis of 10 banks which provided their treasury income numbers in their presentations, six banks — Bank of Baroda, Union Bank of India, UCO Bank, Canara Bank, Ujjivan Small Finance Bank, and Equitas Small Finance Bank —reported a fall in treasury income, while the rest saw an increase.

The banks which showed an increase in treasury income include ICICI Bank, Punjab National Bank, Central Bank of India, and AU Small Finance Bank.

The State Bank of India, HDFC Bank and Axis Bank did not give their treasury gains or loss numbers in their presentations.

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The revised norms

Last year the Reserve Bank of India (RBI) revised directions for banks regarding the classification, valuation, and operation of their investment portfolios, with effect from April 1, 2024.

The revised norms include principle-based classification of investment portfolio, tightening of regulations around transfers to/from held to maturity (HTM) category and sales out of HTM, inclusion of non-SLR securities in HTM subject to fulfilment of certain conditions and symmetric recognition of gains and losses.

Under the new norms, banks have to classify their investments – except investments in their subsidiaries, joint ventures and associates – into three categories from FY25: Available for sale (AFS), held to maturity (HTM), and a new category called fair value through profit and loss, or FVTPL.

The existing held for trading (HFT) category will become a sub-category of the FVTPL, the central bank had said.

The gains realised from this transition have been transferred to the general reserves by the banks, which has impacted the treasury income in the current quarter.

Also read: HDFC Bank net gains Rs 482.87 crore after transition to revised norms on bank investment portfolio

How banks fared

In the April-June quarter, Bank of Baroda reported a treasury income of Rs 295 crore, as compared to Rs 1,152 crore in the year-ago period.

“As far as our profitability metrics are concerned, our operating profit is slightly down to Rs 7,161 crore. This is mainly because of our treasury book. Because of the new RBI guidelines, there is a change in the valuation method which has impacted the operating profit,” said Manoj Chayani, Chief Financial Officer at Bank of Baroda.

Union Bank of India reported a treasury income of Rs 700 crore in Q1FY25, as compared to Rs 775 crore in a year ago period. UCO Bank witnessed a steep fall in treasury income to Rs 90 crore in Q1FY25 versus Rs 138 crore last year. Canara Bank reported Rs 503 crore of treasury income in the April-June quarter as against Rs 536 crore last year.

Sudarshana Bhat, Chief General Manager – Treasury at Union Bank of India, said as far as treasury is concerned after the new guidelines, the AFS book will not be treated as a trading book, it is a banking book. Whatever trading position is to be taken it should be taken into account in the HFT book.

“The bank has taken the position in the HFT book instead of the AFS book and has strategically done the exercise. The bank was able to book similar amount of profit which even otherwise annual shifting, other activities are not there, still the bank could able to generate a year-on-year equivalent profit. That is the main reason for generating an equal amount of profitability in the treasury during the current quarter,” Bhat added.

On the other hand, Punjab National Bank’s treasury income rose to Rs 648 crore in the April-June quarter, from Rs 618 crore in a year-ago period.

Similarly, the Central Bank of India’s treasury income rose to Rs 402 crore in Q1FY25, from Rs 282 crore in the year-ago period. ICICI Bank reported a treasury income of Rs 613 crore in Q1FY25, as compared to Rs 252 crore in Q1FY24.