Analysts at Jefferies estimate aggregate treasury gains in the fiscal second quarter to be ₹5,500 crore, down 58% from ₹13,100 crore a year earlier. Sequentially, this income is expected to be 23% lower compared with ₹7,100 crore in the June quarter.
The benchmark 10-year government bond yield rose about 44 basis points in the past quarter, ending September at around 7.19%, compared with roughly 6.75% three months prior. Five-year yields climbed by an even sharper 47 bps.
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Since yields move inversely to bond prices, the sharp rise in yields has reversed the bond rally seen in the first quarter, when the 10-year yield fell about 28-32 bps. This reduced the scope for mark-to-market and trading gains on banks’ , which form a major part of treasury income, and kept the profit growth muted in September quarter. “Treasury gains are expected to remain muted as bond yields have remained elevated,” said Nitin Aggarwal of Motilal Oswal.
Bankers said the projection of a sharp YoY decline in treasury income also reflected a high base, as lenders had booked sizeable gains on their bond portfolios in the second quarter of last fiscal year. “Unless yields soften from current levels, treasury income is unlikely to provide the kind of earnings support that we saw last year. Profit growth over the next few quarters will increasingly have to come from , fee income and contained credit costs,” said a senior treasury official at a private sector bank.
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The impact is expected to be more pronounced for , which typically have larger portfolios of government securities and had benefited from stronger treasury gains when bond yields softened in earlier quarters.
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