Top fives banks have reported treasury losses  of Rs 10,525 crore in the quarter ended June after bond yields rose sharply from the time the Reserve Bank of India (RBI) hiked the repo rate by 40 basis points on 4 May.

State Bank of India (SBI) reported the steepest treasury loss of Rs 6,549 crore in the first three months of FY23.  The bank also operates the country’s largest treasury of Rs 15.49 lakh crore. Out of this, Rs 12.02 lakh crore is the bank’s investment into the statutory liquidity ratio (SLR) bonds.

‘We do not see any actual loss in this book and as the rates soften the mark-to-market (MTM) losses will be recovered. During the year, we have redemption of Rs 84,000 crore from the AFS (available for sale) book, which will also bring down the MTM losses. Further provision of Rs 1,503 crore was made for the investment depreciation during the quarter,” SBI chairman Dinesh Khara said.

The other banks which posted MTM losses of over Rs 1,000 crore in the April-June quarter were Punjab National Bank (PNB) at Rs 1,409 crore and  HDFC Bank at  Rs 1,312 crore. The trading loss for Axis Bank was Rs 667 crore while for Bank of Baroda it was Rs 588 crore in the June quarter.

Canara Bank, ICICI Bank  and Union Bank of India were the few outliers who had anticipated hikes in interest rates and subsequent rise in yields on their bond portfolios. Being one of the few banks to have anticipated a spike in government yields, Canara Bank reported  the highest treasury gain of Rs 889 crore in the June quarter, 

The yields rose by 60-70 basis points in the quarter, soon after the RBI made an unscheduled announcement of rate hike by 40 basis points on 4 May to tame rising inflation.

 “The MTM is largely in our corporate bond book, 79% of which is rated AA+ and above and 98% is rated A- and above. We do not expect an economic loss on this book. MTM on the book had an adverse impact on the bank’s standalone ROA (return on assets) and ROE (return on equity) for the quarter of 16 bps and 172 bps respectively,” Axis Bank chief financial officer Puneet Sharma said in an analyst call.

The sharp increase in the yields on bonds  post the RBI’s repo rate increase and the cash reserve ratio (CRR) hike sent shock waves in the market. This pushed the yields up from 6.04% on 22 March to 7.45% on 22 June.

HDFC  Bank said that that its losses were due to the  spike in benchmark bond yields witnessed during the quarter ended June. The MTM losses came from the bank’s AFS, HFT (held for trading) and Government of India securities, corporate bonds and pass-through certificates. While the prior quarter was a negative 40%, the prior year was a gain of Rs 600 crore on the treasury book, HDFC Bank told analysts in a post-earnings call.

Many of the banks  are expecting write-back on these notional losses as they do not expect big movements in the yields on government bonds even if repo rates rise. 

“The MTM loss we incurred was due to the 60-70 basis points increase that happened in long-term treasury rates. Now it seems to be the market prognosis that while repo rate hikes would happen, most of the increase would already be factored in in terms of long-term rates. Thus, the increase in long-term rates over the rest of the year is likely to be less as compared to what we saw in a single quarter,” Bank of Baroda managing director and chief executive officer Sanjiv Chadha told analysts.

Canara Bank expects the 10-year benchmark bond to be broadly in the range of 7.25%  to 7.75%. Even at these levels the bank does not expect to post any treasury losses.

Banks who can read the market well will continue to stave off their losses even if yields tend to rise following further rate hikes by the RBI.