Rising bond yields will pressure banks to report mark-to-market losses of as much as Rs 13,000 crore on their funding portfolios within the April-June quarter, a report by Icra mentioned on Tuesday. Profits will reasonable for the quarter, however improved mortgage progress and working earnings will be certain that banks’ backside traces stay “steady” for FY23, the report mentioned.
The impact of the treasury losses might be felt extra by public sector banks as they maintain a better share of presidency securities (G-Secs) of longer tenure.
Public sector banks are anticipated to face mark-to-market (MTM) losses to the tune of Rs 8,000-10,000 crore, in accordance with Icra estimates, whereas non-public banks might report MTM losses of Rs 2,400-3,000 crore in Q1FY23.
“If the yields harden substantially going forward, there could be a sequential moderation in the net profits in FY23,” Anil Gupta, vice-president of Icra, mentioned.
Despite the headwind attributable to the treasury losses on banks’ profitability, its impact might be offset by enchancment in core lending operations. With the rising yields, corporations favor to satisfy their funding requirement by taking loans, as a substitute of tapping the debt market. This has led to an uptick in company credit score offtake, complementing different mortgage segments. The non-food financial institution credit score grew in double digits throughout Q1FY23. The scores company expects incremental financial institution credit score offtake of Rs 12-13 trillion for the present fiscal, larger than Rs 10.5 trillion in FY22.
“Despite these expected MTM losses, we expect the net profits of the banks to remain steady, given the expected growth of 11-12% in their core operating profits in FY23, which will more than offset the MTM losses,” Gupta mentioned.
With 43% of floating fee loans being tied to exterior benchmarks and a lag in improve in deposit charges, banks are prone to present an enchancment of their working earnings. The transmission of modifications in coverage charges takes place quicker in case of externally-benchmarked loans.
On the asset high quality entrance, banks will proceed to publish enchancment on account of decrease slippages and credit score progress. The gross non-performing asset (NPA) ratio is anticipated to enhance to as much as 5.2% by the tip of the present monetary yr, from 6% within the earlier yr, Icra mentioned. However, the web NPA ratio is prone to stay vary certain at round 1.6-1.8% on account of lack of recoveries and upgrades. Slippages are possible to enhance additional to round 2.5-2.7% in FY23 on account of falling bounce charges and overdue loans, the company mentioned.
Despite the development in headline asset high quality, confused belongings stood at 3.8% of ordinary advances as on March 31, 2022, larger than the pre-Covid degree of three.1%, the company mentioned.
Source: www.financialexpress.com”