With benchmark yields rising by as much as 45 basis points in the March quarter, banks’ bond portfolios were hit by mark-to-market losses. The yield on the 10-year benchmark bond hit 7% last quarter, as crude oil prices surged, triggering fears of inflation. Curbs imposed by Reserve Bank of India (RBI) on net open forex positions of banks at $100 million also hurt treasury income as lenders unwound positions.
Mark-to-Market Pain
The other income for public sector banks fell 21% YoY to Rs 45,904 crore, marking the first decline in six quarters. Other income at State Bank of India (SBI) declined 29% owing to a treasury loss of around Rs 1,800 crore. Excluding that, non-interest income rose across every segment, SBI Chairman CS Setty said.
Bank of Baroda reported a decline of 97% YoY in its treasury income, while Punjab National Bank’s treasury income was down 77% on year.
As analysts at Motilal Oswal pointed out, weak treasury performance in Q4 led to a 14% miss on Canara Bank’s earnings.
Regulatory Pressure
Private banks posted a meagre 1.85% rise in other income to Rs 41,689 crore — the lowest growth in four quarters, data sourced from Capitaline showed. The ICICI Bank management told analysts that it had incurred a treasury loss of Rs 106 crore in Q4 as compared with a loss of Rs 157 crore in the previous quarter, reflecting market movements. The bank said this included the impact of the RBI’s guidelines capping net forex open positions in the onshore market. Axis Bank posted trading and mark-to-market losses of Rs 606 crore.
Sanjay Agarwal, senior director at CareEdge Ratings, said PSU banks with significant bond exposure posted higher treasury losses. On an average, private banks recorded modest treasury profits.”
Hemant Sagare, director, Brickwork Ratings, said banks are expected to manage other income better in the coming quarters by being cautious on treasury investments. “Treasury gains will remain under pressure due to persistent pressure on the markets, given the uncertainties around the West Asia war.”