Elevated yields squeeze banks’ treasury income in July-Sept

Mumbai: Treasury gains, which were at the forefront of banking profits for two quarters, nearly halved sequentially in the three months to September due to hardening yields and the absence of central bank open-market operations (OMOs) that had earlier helped anchor a bond rally.

Bankers said the pressure on treasury income could continue in the third quarter as well, as yields are likely to remain elevated.

HDFC Bank saw the steepest decrease in its treasury book, with gains shrinking by 76% from the first quarter to Rs 2,400 crore in Q2FY26. ICICI Bank’s treasury book decreased by more than 67% to Rs 220 crore in the September quarter.

“Treasury income in this quarter has decreased as we saw very high yields in bonds this quarter, and I do not see much income from this segment in Q3 also,” Rajneesh Karnatak, MD & CEO, Bank of India, said during the post-earnings call.
Bank of India’s treasury income decreased 8.5% during the quarter to Rs 5,840 crore, from Rs 6,382 crore.

Yields on the 10-year benchmark government bond hardened in Q2 reaching a high of 6.64% late August. That compares with a June low of 6.12%, CCIL data showed.

India’s policy repo rate is currently 5.5%. The 10-year yield closed at 6.53% on Thursday, and is expected to stay elevated, within the range of 6.40% to 6.50% in the third quarter. Yields are also expected to harden if a trade deal does not materialise between India and the US, bond dealers said. A trade deal with the US would be a positive sign for India’s GDP, a major factor when deciding on the rate trajectory by the Reserve Bank of India (RBI).

“The Reserve Bank’s monetary policy in December will decide the path for Q3. We are expecting one rate cut as of now, but if a trade deal with the US happens, then we can expect an uptick in yields in Q3 and Q4 as well,” said a bond trader from a primary dealership.

The RBI’s monetary policy committee (MPC) is set to meet between December 3 and 5.