A jump in bond yields during the June quarter of 2022 negatively impacted all large lenders. Of eight major banks, only two have escaped losses. Since yields are unlikely to surge sharply for the rest of the year, these banks’ chances of incurring losses are comparatively less.

Bond yield, which remained at 6.80% in March, touched a high of 7.50% in June. This is one of the highest in three years. Since then, it has eased to Monday at 7.35%. Banks are supposed to compulsorily invest 18% of their deposits into government bonds, known as the statutory liquidity ratio (SLR).

Since banks had to account for the fall in their bond valuations, it resulted in a hit on their treasury income. The cumulative impact on State Bank of India (SBI) was the largest as it reported a surprise 7% drop in net profit year-on-year because of a huge hit on the market value of the bank’s government bond investments.

Reported loss/profit of major banks:

Canara’s bank gains were because the bank took timely action by selling longer-duration securities in April before yields started rising, allowing it to reduce its average duration and capture the decline in value. Also, when rates were low, it did not take any exposure to longer duration non-SLR papers.