Higher treasury gains bolster banks' profitability in June quarter

Kolkata: Higher treasury gains bolstered banks' profitability in the June quarter, while their net interest margins (NIM) remained under pressure after the central bank began a softer interest rate cycle in February.

For others witnessing dips in net profit following asset quality strains, treasury income was a saving grace.

The surprise 50 basis points repo rate cut by the Reserve Bank of India's monetary policy committee in the first week of June created trading opportunities for banks helping them log handsome earnings from sale of investments, senior bank executive said.


Banks may not get similar opportunities in the second quarter as bond yields stabilised and are likely to remain range-bound, they said.

Most lenders-from private sector ICICI Bank to state-owned UCO Bank-the trend was similar. Axis Bank and Bandhan Bank reported lower net profits year-on-year. NIMs for all these lenders remained under pressure while their net interest income grew modestly.

"RBI frontloaded the repo rate reduction with a 50 bps cut in June and that created significant trading opportunities helping banks to book higher treasury incomes," UCO Bank managing director Ashwani Kumar told ET. He said that banks may not see similar treasury gains in the second quarter as bond yields have stabilised.

Among bigger banks, ICICI booked treasury income of ₹1,241 crore in the first quarter, more than double of what it did in the year-ago period. It primarily reflected realiSed and marked market gains in fixed-income securities and equities, said Prakhar Agarwal, an analyst with Elara Capital. "We believe the market will be focused more on core PPOP (pre-provision operating profit) as treasury gains are likely to be unsustainable," said Macquarie Equity Research's analysts Suresh Ganapathy and Punit Bahlani earlier in July in a joint note on the bank's first quarter earning preview.

Core PPOP refers to total operating profit minus trading gains minus impact of bad loan recoveries.

Indian Overseas Bank's first quarter net profit at a record ₹1,111 crore, for instance, got a boost from a 46% jump in total recovery of ₹851 crore while it reported a 7% fall in treasury earnings.