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Banks have knocked on the Reserve Bank of India’s door, searching for leisure to unfold the provisioning they’ll want to make for the losses incurred by their bond portfolio due to substantial hardening of yields within the fourth quarter (This fall) of FY26.
Their ask is that the provisioning for mark-to-market losses on investments ought to be allowed to be unfold over 4 quarters starting Q4FY26. This will take the stress off their bottomline.
Spike in G-Sec yields
In the fourth quarter (Q4FY26: January-March), Government securities’ (G-Secs) yields spiked, particularly from February-end, with the onset of the West Asia warfare.
For instance, yield of the 10-year benchmark G-Sec (6.48 per cent GS 2035) jumped 45 foundation factors (bps) to shut at 7.04 per cent on March 30, 2026 (final day of buying and selling in Q4FY26) towards the December-end 2025 closing stage of 6.59 per cent.
The final time banks had made an analogous request to RBI was in 2018, and the regulator had allowed banks to unfold their losses (due to sharp improve in G-Sec yields) by offering for depreciation on investments over 4 quarters, commencing from the quarter by which the loss was incurred.
Bond yields and costs are inversely co-related and transfer in reverse instructions. So, with the yield of the aforementioned G-Sec rising 45 bps, its value crashed about ₹3 within the fourth quarter.
The warfare has triggered considerations within the bond market that rising world crude oil costs might have an inflationary impact within the financial system. This, in turn, could require the RBI’s fee setting panel (the financial coverage committee) to up the repo fee in both its June or August financial coverage assessment to curb inflationary pressures.
Treasury portfolio hit
Bankers say it isn’t simply banks which have taken a success on their treasury portfolio, however the RBI too might face the warmth of spike in G-Sec yields. They identified that the central financial institution bought G-Secs aggregating about ₹7 lakh crore from banks below its open market operations (OMOs) to present them sturdy liquidity in FY26.
“So, the central bank’s portfolio of G-Secs purchased under the OMO window too will be subject to the impact of spike in yields. This could have implications for declaration of dividend to the government for FY26,” mentioned a banker.
The RBI transferred ₹2,68,590 crore as surplus to the Central authorities for FY25. The Union Budget for FY27 has budgeted a dividend/ surplus of ₹3.16 lakh crore from Reserve Bank of India, nationalised banks and monetary establishments towards ₹3,04,590 crore (revised) for FY25.
Venkatakrishnan Srinivasan, Founder & Managing Partner, Rockfort Fincap LLP, mentioned that whereas rising yields sometimes end in mark-to-market pressures on bond portfolios, banks — being pure members within the bond market— could have largely managed this threat by way of energetic portfolio rebalancing and prudent treasury administration.
“As a result, treasury losses are likely to have been contained to an extent. At the same time, with strong double-digit credit growth, improved net interest margins, and significantly lower NPAs, the overall profitability of banks in the last fiscal year is expected to remain robust. This provides some cushion to the system, even as bond market volatility persists,” he mentioned.
Published on April 5, 2026