Bonds rally boosts treasury gains of banks, garner ₹40,187 crore in September 2024

Softening bond yields have boosted treasury gains of commercial banks during the first half of FY25. The scheduled commercial banks (SCBs) in the country together have reported a notional gain of ₹40,187 crore as of September 2024. That compares with a mark-to-market (MTM) loss of ₹34,024 crore reported by them in March 2024.

However, the gains were largely garnered by a clutch of larger banks. “The notional gains were predominantly concentrated among the larger banks,” said the Reserve Bank of India (RBI) in its financial stability report (FSR). Nine banks, including those from the private sector, continue to have notional MTM losses in their held-to-maturity (HTM) book, the report added.

The yields on benchmark 10-year bonds declined by 31 basis points (bps) between April and September on the back of lower-than-expected government borrowings for FY25. Further, the inclusion of Indian bonds in the JPMorgan index starting in June 2024 also attracted foreign flows to the bond market. So far in FY25, the foreign portfolio investors (FPIs) have pumped $9.2 billion into the debt market, according to Bloomberg data.

Also Read: 2024: An inflection point for India’s bond market — what lies ahead for retail investors in 2025

However, yields have trended up since the beginning of Q3FY25 on account of the negative sentiment caused by the acceleration of domestic retail inflation. After hitting a 14-month high of 6.21% in October 2024, India’s retail inflation, based on the Consumer Price Index (CPI), softened to 5.48% in November but stayed well-above the RBI’s 4% target. Since September the yields have gained marginally by 2 bps to 6.8%.

The distribution of unrealised gains across investment categories suggests that private banks have the largest proportion of gains in their G-sec books, while state-owned banks have the largest proportion of their gains in their state development loans (SDL) books, the RBI report said. Additionally, public sector banks have MTM gains in all categories of their HTM books whereas the loss in the corporate securities portfolio of private lenders is due to lower-grade corporate bonds held in their HTM book.

Treasury gains form part of income for banks, generated through the management of a bank’s funds, investments and other financial assets. Treasury gains are classified as ‘other income’ in a bank’s profit and loss account.

Also Read: Bonds extend their rally for the fourth day, headed for the best year since 2020