Treasury gains shrink for banks in Q2 as rising yields hit trading books

Treasury income fell at several major banks in Q2FY27 as bond yields climbed, weighing on other income and profits despite growth in net interest income across lenders.

Banks whose September-quarter numbers are out posted a sharp fall in treasury income, as the rise in bond yields and the Reserve Bank of India's (RBI’s) shift to a rate-hike cycle cut trading gains.

 

In most cases, the decline took a toll on profit growth even as net interest income (NII) rose.

 

The yield on the benchmark 10-year government bond hardened by 42 basis points (bps) during the quarter, while the 5-year bond rose by 43 bps to 6.85 per cent.

 

The 10-year yield closed at 7.17 per cent on September 30, after rising 22 bps in September alone, its highest level since April 2024. This rise more than reversed the fall of around 32 bps in the first quarter.

 

  

The yield on the 7-year bond and the 15-year bond rose by 50 bps and 40 bps, respectively, in Q2FY27.  

HDFC Bank's treasury trading gains fell sharply to ₹780 crore from ₹2,390 crore a year ago, leading to a 3.6 per cent decline in other income at ₹13,830 crore.

 

The lender's standalone net profit rose 4.7 per cent to ₹19,510 crore.

 

The bank said profit, excluding treasury trading gains, grew about 12.6 per cent year-on-year (Y-o-Y).

 

At Axis Bank, trading income fell to ₹85 crore from ₹498 crore a year earlier, and other income slipped 1 per cent to ₹6,531 crore. Net profit still rose 38 per cent to ₹7,003 crore as provisions fell.

 

Meanwhile, ICICI Bank reported a treasury loss of ₹230 crore in Q2FY7, a swing from the ₹220 crore treasury gain in Q2FY26 and the ₹151 crore gain in Q1FY27.

 

For H1FY27, treasury income was a net loss of ₹79 crore, sharply lower than the ₹1,461 crore earned in H1FY26. 

 

Among state-owned lenders, Canara Bank's treasury income fell 68.5 per cent to ₹499 crore from ₹1,583 crore, with profit on sale of investments down 87.4 per cent to ₹153 crore. Central Bank of India's treasury income fell 31.2 per cent to ₹128 crore. It booked ₹87 crore loss on revaluation of investments, against ₹51 crore loss a year ago.

 

Yes Bank was an exception. Its treasury segment profit rose 88.3 per cent to ₹715 crore. 

According to Union Bank of India, markets expect another 50 bps rate hike in six months, which could weigh on treasury income, though the bank has kept its portfolio protected. Excess statutory liquidity ratio (SLR) holding is about 2.5 per cent, or around ₹28,000 crore-₹30,000 crore.

 

The RBI raised the repo rate from 5.25 per cent to 5.5 per cent at its October policy meeting and tightened liquidity through open market operations (OMO) sales of government securities.

 

Yields rose during the quarter as a global bond sell-off, higher crude oil prices and a weaker rupee weighed on the domestic market.

 

Global bonds closed September with their worst month in years, with the US 10-year Treasury yield rising to 5.34 per cent, its highest level since 2002.

 

Brent crude climbed back above $100 a barrel, having fallen to pre Iran-US war levels in the first quarter, which revived concerns on imported inflation. 

 

The yield on the benchmark 10-year government bond crossed 7 per cent on September 11. It was driven by a surge in crude oil prices, global bond sell-off and expectation of rate hike by the RBI’s Monetary Policy Committee.