Banks set to take hit on treasury portfolio as yields fail to come down Due to the extreme liquidity tightening steps taken by RBI in July, banks had taken a major hit on their treasury portfolio The yield on the 10-year benchmark government bond may end the fourth quarter ending March 31 at a level very close to where the quarter had began resulting in Mark-To-Market (MTM) losses for banks. Earlier this quarter there were expectations that the Reserve Bank of India (RBI) may cut the repo rate in the third quarter review of the monetary policy held in January. However, RBI resorted to an increase in the repo rate by 25 basis points due to concerns on crore inflation. This resulted in yields remaining elevated. Banks already have the burden of making provisions for bad loans. To top it up they will also have to make provisions for these MTM losses, said bankers. Due to this reason many public sector banks have asked the regulator to allow it to charge MTM losses to its balance sheet instead of profit-and-loss accounts to mitigate the impact. “Many banks have requested RBI to charge MTM losses to balance sheet. This is because even in banks are going to take a hit on their treasury portfolio. There were expectations that in January the repo rate may be cut and bond yields may move down. But even that did not happen. And for next weeks policy review too the street does not expect a rate cut. Due to these factors the yield on the 10-year bond did not change much from the levels it had begun at the start of the quarter,” said the head of treasury of a public sector bank. Due to the extreme liquidity tightening steps taken by RBI in July, banks had taken a major hit on their treasury portfolio. However, later banks sought from RBI to ammortise the MTM losses spread equally over the next three quarters beginning the second quarter. “RBI had earlier given time to ammortise losses spread over three quarters. This being the last quarter banks will have to take pending losses in this quarter itself. There was an expectation that the 10-year bond yield will cool off by year end thereby reversing the losses of the past. But unfortunately that did not happen. The losses will be of similar quantum which was taken by these banks in third quarter,” said Rajiv Mehta, banking analyst with India Infoline. The street expects status quo on key policy rates in the first bi-monthly monetary policy for 2014-15 to be detailed on April 1. Due to that the yield on the 10-year benchmark bond 8.83% 2023 is not seen moving much from current levels. The yield on the bond was at 8.83% on December 31 and today it ended at 8.79%. Yesterday the yield had ended at 8.78%.
Posted on: Tue, 25 Mar 2014 16:27:57 +0000
Trending Topics
Recently Viewed Topics
© 2015