Whalesbook
Banks' Treasury Income Hit by RBI Forex Rules and Market Drop
Leading private banks HDFC Bank, ICICI Bank, and Yes Bank saw their treasury income shrink in the fourth quarter of fiscal year 2026. This decline was caused by two main factors: new, strict rules from the Reserve Bank of India (RBI) on foreign exchange trading and a general slump in equity and bond markets during January-March.
The RBI’s directive in March limited banks’ net open positions (NOP) – their exposure to currency fluctuations – in the onshore market to $100 million. This was a significant cut from previous limits, which allowed up to 25% of a bank's total capital. Many large banks, which reportedly held NOPs between $250-300 million, had to reduce their positions by April 10, 2026. The RBI implemented this change to help stabilize the Indian rupee amid rising global volatility and geopolitical risks, directly affecting banks' ability to profit from currency trading.
Individual Bank Results Affected
HDFC Bank’s net trading and mark-to-market income dropped to ₹800 crore in Q4 FY26, down from ₹900 crore in the previous quarter. CEO Sashidhar Jagdishan noted a partial impact in March and early April, stating it contributed to "slightly tepid growth in forex income for the full year."
ICICI Bank recorded a treasury loss of ₹106 crore for Q4 FY26. This contrasts with a gain of ₹239 crore in the same period last year, though it was an improvement from its ₹157 crore loss in Q3 FY26. Executive director Sandeep Batra explained the loss was mainly due to market movements and the impact of wider spreads following the RBI's guideline.
Yes Bank’s trading gains also fell, to ₹83 crore in Q4 FY26, compared to ₹131 crore in Q4 FY25. The broader decline in stock and bond markets further pressured these results, limiting gains from investment portfolios.
Market Valuations and Sector Trends
As of mid-April 2026, HDFC Bank traded at about 16.2x forward P/E and 15.54x trailing twelve months (TTM) P/E. ICICI Bank traded around 17.77x TTM P/E, while Yes Bank was at approximately 18x TTM P/E. These valuations are generally in line with their historical averages for large banks, though ICICI Bank's P/E is at a premium to the Indian banking industry average of around 12x.
Despite the specific challenges, the Nifty Bank index showed strength earlier in 2026, reaching record highs above 60,000 in January. However, the RBI's forex rule has created a specific challenge for treasury operations. Analysts believe public sector banks, which often held larger NOPs, might experience a more significant impact on their trading income than private banks. Industry estimates suggested the sector could face around INR 40 billion in one-off treasury losses due to these forex restrictions.
Compliance Challenges and Market Headwinds
Banks have reportedly asked the RBI for a three-month extension to comply with the new $100 million NOP limit, citing fears of disorderly unwinding of positions and potentially substantial losses. This regulatory change, combined with rising bond yields and ongoing geopolitical tensions, adds layers of uncertainty and pressure on treasury operations.
Outlook Remains Positive Despite Short-Term Hit
While the RBI's forex measures and market declines affected Q4 FY26 treasury income, the long-term outlook for the banking sector remains cautiously optimistic. This optimism is supported by strong credit growth and stable asset quality. Banks are expected to manage these challenges, as the RBI has indicated the forex measures are temporary and subject to review. Analysts anticipate continued loan demand and potential margin stabilization as interest rate changes filter through, although competitive deposit gathering and geopolitical risks remain key factors to watch.