Whenever, the bond yields rise, prices fall due to inversely proportional relationship between both. This leads to lower mark-to-market gains on the investment of banks in these securities.
In Q1, the central bank reduced the repo rate by 75 basis points to support growth, with a 25 bps cut in April and 50 bps in June
There has been greater pressure on banks' NIMs due to a downward repricing of External Benchmark Lending Rates amid front loading of rate cuts by the Reserve Bank of India in the last three monetary policies
During Q1FY26, RBI has reduced repo rate by 75 bps to support growth. In response to this rate cut, only 20 bps yields have reduced on the government securities.
During the January-March quarter, yields on government securities, particularly the 10-year benchmark bond, eased by around 20 basis points, driven by the Reserve Bank of India's OMO purchases, easing inflation, and a 25 bps policy rate cut.
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.
Yield on the government securities, especially 10-year benchmark fell by around 25 basis points in the second quarter of FY25. According to Bloomberg data, yield on 10-year benchmark bond stood at 7.011 percent on July 1, as against 6.750 percent on September 30.
Barring ICICI Bank, Punjab National Bank, Central Bank of India and AU Small Finance Bank, which witnessed increase in treasury income, other reported a dip.
Since April, the yield on government securities fell around 10-15 basis points due to multiple factors , like the easing inflation print, Brent crude oil prices, and the higher dividend transfer announced by the Reserve Bank of India.
In the reporting quarter, the bank reported Rs 753 crore as treasury income.
Yield on the bonds have eased due to heavy inflows by the foreign investors amid Indian bond inclusion in global bond index announcement last year.
The yield on the 10-year benchmark bond with a 7.18 percent coupon rate has dropped 11 basis points since the budget announcement.
Most banks had reported a rise in treasury gains in the July-September quarter, experts said
In the reporting quarter, Union Bank of India reported a sharp uptick in its treasury income. It rose over 101 percent on-year in April-June to Rs 775 crore.
Describing the numbers as "a reflection of responsible and sustainable growth", Citi India chief financial officer Niraj Parekh said, "During the period, our focus on superior asset quality and ability to service institutional and retail clients translated to high quality earnings, despite the macroeconomic pressures.
Ambareesh Baliga expects Nifty to be rangebound and advises investors should stay away from PSU banking space because there is some more pain left for them.
Jagdish Malkani, member of NSE and BSE, says that SBI is still a great play on the Indian economy. He talks to the CNBC-TV18 of the future of the bank and other PSUs in the country.