MUMBAI, May 14 -- Rising government bond yields hit banks' treasury income in the March quarter (Q4FY26), dragging down non-core earnings, especially at public sector lenders. Analysts now expect the pressure to intensify in the June quarter after an oil-driven spike in bond yields following the West Asia conflict.

If elevated oil prices persist through June, analysts warn the impact could spill beyond treasury income, with higher inflation and slower economic growth beginning to weigh on credit demand, margins and eventually asset quality.

The strain was already visible in March-quarter earnings. A Mint analysis of 36 listed banks that have reported earnings so far showed total income grew just 1% year-on-year, the slowest pace in four...