Treasury gains may support Indian banks to compensate asset quality

As the demonetisation process continues, banks have so far bagged Rs 11.85 lakh crore as deposits. Naturally, banks are staring at huge treasury gains. 

Nitin Aggarwal and Renish Patel analysts of Antique Stock Broking firm said, “Treasury gains will add upto 6% in operating earnings of major public sector undertakings (PSU) banks over second half of current fiscal year (2HFY17), assuming 50 basis point reduction in interest rate across yield curve.”

In the month of November 2016, yields on government securities have significantly declined. Yields have declined by 53 basis points (bps) during Q3 FY2017 (YTD) versus 49 bps during Q2 FY2017. On a cumulative basis, yields during FY2017 (YTD) declined by 104 bps, mostly during Q2/Q3 FY2017.

In past one year, the share of treasury profits of total income has increased steadily.

During this Q2 performance, treasury profit to total income have increased consistently for many banks like Punjab National Bank (11%), Bank of Baroda (11%), Bank of India (23%), Union Bank of India (14%) and lastly ICICI Bank at 45%.

Not only this, treasury profit of PAT (profit after tax) has also increased especially for Bank of India (845%), Union Bank (264%), Axis Bank (168%) and once again for ICICI Bank at 207%.

These higher bond gains will further support banks to compensate their asset quality and margins pressure for near term, said Antique.

In the second quarter, bond gains have been better for majority of public banks, especially for Union Bank of India.