September 20, 2025

Mumbai: Bank treasury desks had a happy Q1, riding high on falling bond yields and massive ₹2.4 lakh crore open market operations (OMOs) by the Reserve Bank of India (RBI). These factors helped banks pocket handsome profits despite slow credit growth. But hold your cheers! The second quarter is serving a reality check. Experts warn that rising bond yields and the absence of OMOs will put a major squeeze on these treasury gains. In Q1, the 10-year government bond yield fell to as low as 6.25%, making bond prices soar and helping banks book big profits by selling bonds at higher prices. The RBI's hefty OMO purchases played a starring role here by pushing bond prices up and yields down. But in Q2, this picture flipped. Bond yields climbed sharply to 6.60% and RBI kept its wallet shut, conducting no OMOs. Anil Gupta, Senior Vice President at ICRA, explained, "Treasury gains in Q2 are expected to be lower than Q1 for two reasons - higher yields and absence of OMOs. When there is an OMO with a large buyer like the central bank, banks profit from selling their bonds. Hence, the quantum of treasury gains would surely be lower than Q1." Banks also took advantage in Q1 by shifting some securities from their held-to-maturity (HTM) books to available-for-sale (AFS) books, helping them book extra profits amid falling yields. Unfortunately, this trick isn't available in Q2. Data shows this impact clearly. Axis Bank’s treasury gains soared by 245% in Q1, ICICI Bank by 103%, Bandhan Bank by a whopping 696%, and Bank of Maharashtra by 305%. HDFC Bank and SBI also saw jumps of 242% and 144% respectively in their trading books. A treasury head at a mid-sized bank warned, "This quarter there would be pressure and maybe some mark-to-market losses in treasury books, but it is difficult to access the quantum. We will get to see which institution has a smart treasury team when Q2 results are announced." Asutosh Mishra, lead BFSI analyst at Ashika Stock Broking, added, "Banks have the option to shift from AFS to HTM in Q1 which helps them book profits. This option is not available in Q2, and they miss out on additional gains. Losses are difficult to predict but the gains would be muted." So, while Q1 was a jackpot for some banks thanks to RBI’s support and soft yields, Q2 brings a tougher game. Rising yields mean bond prices drop, and without fresh RBI buying, banks’ treasury earnings are likely to take a hit. Investors, stay tuned for the Q2 results—it will reveal which banks played their cards best in this challenging market!

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Tags: Banks, Treasury gains, Open market operations, Bond yields, Rbi, Q2 earnings,