In a significant development for the Indian banking sector, major banks have reported a substantial decline in treasury gains during the July-September quarter. This downturn is primarily attributed to hardening bond yields and the absence of open-market operations by the central bank.

Key Highlights

• Treasury gains at Indian banks have nearly halved in the July-September quarter.
• The 10-year benchmark government bond yield reached a high of 6.64% in late August, up from a June low of 6.12%.
• Bank executives anticipate continued pressure on treasury income in the third quarter.

Impact on Major Banks

The impact of rising bond yields has been felt across several major Indian banks:

Market Outlook

The banking sector is bracing for continued challenges in the treasury segment:

• Yields are expected to remain elevated between 6.40% to 6.50% in the near term.
• The upcoming RBI monetary policy committee meeting, scheduled for December 3-5, will be crucial in determining the future rate trajectory.

Factors Influencing Treasury Income

Bond Yields

The sharp rise in bond yields has been a primary factor in the reduced treasury gains. As bond yields increase, the value of existing bonds in banks' portfolios decreases, leading to lower treasury income.

Absence of Open Market Operations

The lack of open market operations by the central bank has further contributed to the pressure on treasury income.

Market Volatility

The fluctuating market conditions have added to the challenges faced by banks in managing their treasury operations.

This development underscores the sensitivity of bank treasury operations to market conditions and monetary policy decisions. As the banking sector navigates these challenges, the upcoming RBI policy meeting will be closely watched for its potential impact on future treasury performance and overall banking sector stability.

The Indian stock market has reached a four-month high, with banking stocks leading the charge in a pre-Diwali rally. This surge in the market has caught the attention of investors and analysts alike, as key indices show significant gains.

Market Performance

The NSE Nifty and BSE Sensex both closed on a positive note, reflecting the overall bullish sentiment in the market:

The weekly gain of 1.70% marks the highest in four months, indicating a strong momentum in the market.

Banking Sector Leads the Rally

The banking sector emerged as the star performer:

• Bank Nifty hit a record high
• Banking index gained nearly 2.00% for the week
• Closed 0.50% higher on the day

Analysts attribute this rally to business updates showing higher loan growth. However, they caution that this uptick might be seasonal, coinciding with the festive period.

Sectoral Performance

Other sectors also contributed to the market's upward trajectory:

Asian Paints stood out as the top Nifty gainer, with a remarkable jump of 4.10%.

Market Outlook

Technical analysts suggest that the Nifty has broken out of a triangle formation, potentially targeting 26,300 levels next month. However, they warn that these gains may not sustain post-Diwali.

Investor Activity

The market saw active participation from both foreign and domestic investors:

Mid and Small-Cap Performance

Despite the overall market gains, mid-cap and small-cap indices faced a decline on Friday, indicating a divergence in market sentiment across different segments.

As the market approaches the Diwali festival, investors should remain cautious and monitor how these trends develop in the coming weeks. The banking sector's performance will be crucial to watch, especially as the festive season progresses.