The Reserve Bank of India’s decision to prevent banks from spreading mark-to-market losses this quarter signals increased transparency but heightens profit volatility amid bond yield fluctuations, impacting payout prospects and investor outlooks.
India’s banks are heading into another earnings season with treasury income under pressure after the Reserve Bank of India refused to let lenders spread mark-to-market losses over several quarters. The decision, taken in April 2026, means any fall in the value of bond portfolios must be recognised immediately rather than smoothed out, leaving quarterly results more exposed to swings in government bond yields.
At the centre of the issue is the way banks account for holdings of government securities. When yields rise, bond prices fall, which creates mark-to-market losses on portfolios held for trading or sale. Banks had asked the RBI to stagger the impact, arguing that a slower charge would reduce noise in profits. According to the Economic Times, the central bank turned down that request to preserve transparency and prevent losses from being pushed into the next financial year.
The RBI has taken a similarly firm line on other accounting changes as well. In April 2026, it also rejected banks’ request for more time to move to the expected credit loss framework, which requires lenders to make provisions earlier against possible bad loans. Livemint reported that the new regime is due to take effect from April 1, 2027, giving banks a year to prepare their systems and models. Financial Express said the shift could weigh more heavily on public sector and mid-tier lenders, with an estimated industry-wide profit hit of ₹55,000 crore.
For investors, the message is that both treasury earnings and provisioning costs are likely to remain volatile. The current policy leaves banks unable to hide losses from short-term rate movements, which makes quarterly treasury income a key line to watch alongside net interest margins. With bond markets still shaped by inflation expectations, global risk sentiment and policy moves, lenders with larger fixed-income books could see profits move sharply from one quarter to the next.
That tension is not new. Back in 2018, the RBI had allowed banks to spread provisioning for MTM losses on investment portfolios over four quarters when government securities yields rose sharply. This time, however, it has chosen not to revive that relief, signalling a harder stance on clean balance sheets and timely recognition of losses. For shareholders, that means earnings from banking stocks may remain more closely tied to market rates than to underlying lending performance alone.
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