Reporting from DUBAI: Banks across India are touting strong quarterly profits – but that doesn’t always mean their financial strength is growing.
In fact, net worth is sometimes lagging behind earnings. That’s the case at CSB Bank, where a little‑known accounting reserve is quietly trimming its real capital base.
CSB Bank recently reported a net profit of around Rs160 crore for the quarter ended September 30, 2025. Yet its net worth climbed by only about Rs50–60 crore, according to its latest financials.
Rather than being a glitch or a management mistake, this gap is driven by how the bank handles Available-for-Sale (AFS) securities, explains CEO Pralay Mondal.
In his remarks on the earnings call, Mondal noted, “This quarter, the yields have gone up … that’s the reason that any kind of marked-to-market (MTM) pluses and minuses go and sit into the AFS reserve.” When yields rise, the market value of a bank’s AFS bond holdings can fall sharply.
While those losses – the mark-to-market (MTM) losses – do not hit the profit-and-loss account (P&L account), they flow into the AFS Reserve, part of Other Comprehensive Income (OCI), reducing the bank’s net worth.
Why AFS matters
Banks often hold very large AFS portfolios, including government securities, corporate bonds, and other fixed-income instruments.
Because of their scale, even modest shifts in bond yields can result in hundreds or even thousands of crores of mark-to-market (MTM) gains or losses.
These MTM losses do not dent reported profit (P&L) but do erode net worth, which is the bank’s real capital buffer.
At CSB, the recent rise in yields produced significant MTM losses, pushing down net worth while the P&L remained relatively strong.
For a bank of its size, that kind of swing can materially affect its balance-sheet strength even if its earnings headline looks good.
Dubai-based fixed-income strategists also see this as a real risk. According to an executive from the global fixed-income team of an Abu Dhabi-based bank, such repricing of yields has major implications:
“When global yields move, it’s not just the immediate income that matters – the mark-to-market effect on long-duration exposures can quietly erode capital,” he said while talking to businessbenchmark.news in Abu Dhabi.
Meanwhile, Emirates NBD’s research team highlighted in a recent credit market update how bond-market volatility in emerging markets – especially in sovereign and quasi-sovereign debt – could significantly affect banks’ balance sheets.
They warned that repricing risk “is a non-trivial factor for financial institutions holding large fixed-income portfolios.”
Why this matters
Net worth vs. profit: While reported profit captures the quarter’s earnings, net worth reflects how much capital cushion a bank actually has.
Many stakeholders focus on P&L, but may overlook other comprehensive income (OCI) and AFS reserve movements.
If net worth is eroded, a bank’s ability to lend, grow, or absorb shocks could be weaker than expected. However, if yields fall later, AFS losses may reverse and boost net worth – but gains could remain off the P&L unless securities are sold.
Although CSB is a clear example, this is a broader phenomenon. Many Indian banks with large AFS books face the same risk when yields rise: a silent pull on their capital base that isn’t obvious in headline profit numbers.
CSB’s case
CSB’s case is a reminder that headline profits don’t tell the full story. As CEO Pralay Mondal pointed out, the real action may be in the AFS reserve – not in the income statement.
“For anyone tracking bank health, looking beyond profit to changes in OCI and net worth offers a more transparent view of financial strength,” added the Abu Dhabi-based analyst.
