MTM losses likely for lenders as yields on govt bonds hit 12-month high

Mumbai: Banks may face significant mark-to-market (MTM) losses in the March quarter as rising sovereign bond yields erode the value of their government securities portfolios. India’s 10-year government bond yield climbed to a 12-month high of 6.96% on March 27, up from 6.68% at the start of the month, rising nearly 28 basis points in March alone. The increase has been driven by escalating geopolitical tensions, the ongoing US-Israel-Iran conflict, and higher global crude oil prices that have revived inflation concerns.

Bankers and analysts said that despite the Reserve Bank of India’s aggressive intervention through open market operation (OMO) purchases-₹1.77 lakh crore in March alone and ₹4.57 lakh crore over the entire fourth quarter-banks are unlikely to escape the quarter unscathed. MTM losses on government securities portfolios are expected to weigh on earnings.

“For me, 6.95% was the worst-case scenario, which was breached on Friday, and I don’t think many banks will have a positive book,” said Alok Singh, treasury head at CSB Bank. “Most banks would have bought bonds between the 6.30% and 6.70% levels this fiscal year, and after Friday’s close these portfolios are off the curve by about 30 basis points, which is negative from a book-running perspective.”

The RBI stepped up intervention in early March, frequently purchasing bonds on-screen during the final hour of trading-a move widely seen as an attempt to cap the rise in yields. On several occasions, yields eased by 3-6 basis points in the last half hour of trade, even as broader market sentiment weakened amid geopolitical risks.

The strain on banks’ treasury books is not new. Banks had witnessed moderation in treasury income in the December quarter after peaking in the June quarter due to swings in the yields. Even when yields traded in the 6.47%-6.57% range between October and December 2025, banks faced MTM pressure.

In the December quarter the the net trading and MTM income for HDFC Bank fell to ₹9 billion versus ₹24 billion in the September quarter and ₹101 billion in the June quarter.

The new year brought little relief, with yields crossing 6.60% in January before accelerating further in March. “The surge in government bond yields is likely to hit banks’ treasury earnings in the March quarter despite RBI OMO support,” said Prakash Agarwal, partner at Gefion Capital, adding that inflation worries stemming from higher oil prices, West Asia tensions and rising global yields continue to push yields higher. However, some bankers are hopeful of limited near-term relief. “I expect MTM losses due to hardening yields, but there could be some respite on Monday,” said Gopal Tripathi, head of treasury at Jana Small Finance Bank.