Bond yields muddy the books as banks prepare for new accounting rules
With a new accounting framework approaching in April 2027, Indian banks like Canara Bank and Central Bank of India are adjusting their transition costs and reassessing their portfolios. Recent fluctuations in government bond yields, driven by econ...
Rising bond yields cloud banks' transition to new accounting rules from April 2027
Mumbai: Fluctuations in government bond yields are emerging as a fresh uncertainty for Indian banks preparing to adopt the new accounting framework from April 1, 2027. Several lenders have revised their estimated transition costs, while others are yet to quantify the additional impact of valuing held-to-maturity (HTM) investment portfolios at market prices.
Canara Bank has widened its estimated one-time transition requirement to ₹12,000-15,000 crore, compared with an assessment of about ₹12,000-13,000 crore in July. Central Bank of India has raised its expected credit loss (ECL) provisioning estimate by around ₹500 crore, while Bandhan Bank's latest assessment of ₹2,200 crore is higher than its earlier estimates.
The revised framework requires banks to shift from the existing incurred-loss provisioning system to a forward-looking ECL model, under which lenders must recognise anticipated credit losses before loans become non-performing. Separately, banks will have to revalue their HTM investment portfolios at fair value on March 31, 2027, with the resulting adjustments reflected in reserves.
Canara Bank managing director and CEO Brajesh Kumar Singh said the bank's estimated transition requirement could change depending on prevailing bond yields and its investment holdings.
"HTM will be also mark-to-market. So that will affect us by ₹2,000-3,000 crore," Singh said during the bank's September quarter earnings call.
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Central Bank of India has increased its estimated ECL requirement to ₹5,000-5,500 crore from ₹4,500-5,000 crore in July. "Out of those ₹1,525 crore has been already kept as additional provision," managing director and CEO Kalyan Kumar said during the earnings call.
Bandhan Bank has estimated a one-time ECL transition impact of ₹2,200 crore, compared with its initial assessment of ₹1,250 crore made several quarters ago. Managing director and CEO Partha Pratim Sengupta said the ₹2,200 crore calculation was based on the March 2026 loan portfolio and that subsequent improvement in overdue accounts could reduce the eventual requirement.
Indian Bank has estimated an ECL requirement of about ₹3,500 crore, against which it has already created provisions of ₹2,500 crore. However, the bank has not quantified the additional HTM valuation adjustment.
Kotak Mahindra Bank expects a one-time ECL impact of less than 2% of net worth, while Federal Bank estimates its one-time ECL credit-loss impact at 1.5-2% of net worth.
Government bond yields have risen sharply over the past four months, increasing the risk of valuation losses on banks' investment portfolios. The benchmark 10-year G-sec yield climbed to 7.18% at September-end from about 6.75% at June-end, an increase of 43 basis points, before rising further to nearly 7.50% in the last week of October. A basis point is a hundredth of a percentage point. The surge was driven by elevated crude oil prices, rupee weakness, tightening liquidity and expectations of further rate hikes by the Reserve Bank of India, following the 25-basis-point increase in the repo rate in October. However, yields fell sharply to about 7.32% on Monday as declining oil prices triggered a rally in government bonds. Despite the recent decline, yields remain around 57 basis points above late-June levels.
