Banks set for robust Treasury gains in Q4FY25 as FPIs return, BFSI News, ET BFSI
Banks are set to document treasury gains within the fourth quarter of FY25, pushed by a surge in overseas institutional investor (FII) inflows into the domestic debt market. The yield on the 10-year benchmark authorities bond declined by 8 foundation factors (bps) final week to settle at 6.62%, marking the steepest weekly drop in 4 months. Yields on the five-year and 14-year bonds additionally softened by 22 bps and 11 bps, respectively, creating alternatives for banks to e book mark-to-market positive factors.
Web overseas inflows into government securities beneath the absolutely accessible route (FAR) have been strong, with Rs 8,560 crore pouring in final week. March has witnessed the best overseas inflows into Indian debt since August 2024, with web purchases of Rs 8,497 crore recorded to this point. Expectations of one other fee lower by the Reserve Bank of India (RBI) in June have additional fuelled FII curiosity within the bond market.
OMO enhance
The RBI’s ongoing open market operations (OMO) auctions have offered an avenue for banks to learn from falling yields by pulling bonds out of their held-to-maturity (HTM) portfolios. Thus far in 2025, the RBI has performed OMO buy auctions price Rs 2 trillion, with one other Rs 50,000 crore public sale scheduled this week.
With web liquidity within the banking system reflecting a deficit of Rs 2.32 trillion as of Thursday, state-owned banks have been main contributors in these auctions. Beneath the brand new funding norms efficient April 1, 2024, banks are required to classify bonds as HTM on a everlasting foundation, with solely 5% of the portfolio eligible for withdrawal all year long. Any deviation from this norm requires approval from the financial institution’s board and the RBI, though these bonds stay eligible for OMO participation.
