Banks’ overall profit in Q4FY24 could be buoyed by treasury gains

FY24 has ended on a positive note for Bank treasuries, with Government Securities’ (G-Secs) yields softening on a year-on-year (y-o-y) as well as quarter-on-quarter (q-o-q) basis.

What this means is that treasury profits could buoy Banks’ overall profitability in the fourth quarter as well as the financial year.

For example, the yield of the widely traded benchmark 10-year G-Sec (coupon rate: 7.18 per cent) softened about 26 basis points (bps) y-o-y and about 12 q-o-q to close at 7.0556 per cent on Thursday, which was the last trading day of the current financial year. One basis point equals one-hundredth of a percentage point.

The price of the aforementioned security closed at ₹100.83, about 80 paise higher vis-a-vis the December-end 2023 close and about ₹1.20 paise higher vis-a-vis March-end 2023 close.

Gross borrowing

G-Secs yields eased quite a bit in the fourth quarter after the government announced a lower gross borrowing for FY25 in the Union Budget, said V Rama Chandra Reddy, Head-Treasury, Karur Vysya Bank. Further, the possibility of a repo rate cut in the second quarter and the inclusion of G-Secs in global bond indices helped soften the yields.

The government’s gross borrowing in FY25 is pegged lower at ₹14.13 lakh crore against ₹15.43 lakh crore in FY24.

“Most of the Banks will make treasury gains in the reporting quarter. Banks which made provisioning in the previous quarters for mark-to-market losses will see write-back in provisions,” said a debt market dealer with a private sector bank.

Reddy observed that now that all the good news, including lower government borrowing and inclusion of G-Secs in global bond indices has been discounted, the next major trigger for yield movement will be the bi-monthly monetary policy review.

Any hint of a rate cut could thaw the yield of the benchmark paper towards 6.80 per cent either in Q1 (April-June) or Q2 (July-September).