The Reserve Bank of India (RBI) has turned down a proposal to let banks unfold provisions towards their treasury losses within the June quarter over 4 quarters. The central financial institution final week conveyed its resolution in a written communication to banks who had sought the concession, in accordance with well-placed sources.
An e-mail despatched to the RBI looking for its response remained unanswered until the time of going to press.
Rising bond yields might trigger Indian banks to incur mark-to-market (MTM) losses of as much as Rs 13,000 crore of their bond portfolios within the quarter ended June 2022 (Q1FY23), in accordance with Icra.
The lack of a dispensation will harm public sector banks (PSBs) extra, given their greater holding of presidency securities of longer tenor.
Icra estimates MTM losses on bond portfolios to vary between Rs 8,000-10,000 crore for PSBs and Rs 2,400-3,000 crore for personal banks in Q1. Anil Gupta, vp, Icra, mentioned that regardless of the anticipated MTM losses, web income of banks will stay regular, with the treasury losses being offset by an anticipated progress of 11-12% of their core working income in FY23. “However, if the yields harden substantially going forward, there could be a sequential moderation in the net profits in FY2023,” Gupta mentioned.
People aware of the RBI’s considering mentioned that the central financial institution believes it has finished sufficient to guard financial institution treasury books from the impact of rising yields by not launching the standing deposit facility (SDF) earlier than April.
According to the June 2022 version of the monetary stability report (FSR), banks’ buying and selling revenue recorded a marked discount after Q1FY22. During Q4FY22, it fell by 17% on a sequential foundation for PSBs, whereas it elevated for personal banks. Foreign banks reported buying and selling losses for the fifth consecutive quarter, with buying and selling losses rising in Q4FY22.
Banks are required to mark down their obtainable on the market (AFS) and held for buying and selling (HFT) bond portfolios on a quarterly foundation to account for declines within the valuation of their holdings. In case of MTM losses, they have to make provisions towards these losses, which hurts their profitability.
The repo fee hike of 90 foundation factors (bps) in May and June, accompanied by different measures aimed on the withdrawal of system liquidity, have led to a pointy rise in yields through the present quarter. Between March 31 and July, the yield on the benchmark 10-year authorities bond has risen 59 foundation factors (bps) to 7.466%.
The FSR mentioned that in FY22, PSBs most popular to enhance their allocation in state improvement loans (SDLs) and wind down their different holdings within the HTM class. Under the then prevailing low rate of interest circumstances, banks bought a big portion of their HTM portfolio and booked income.
“Since G-Secs form the largest share of the HTM portfolio, the presence of substantial unrealised losses, especially in respect of PSBs, at the beginning of the interest rate tightening cycle, portends risk to their financial health going forward,” RBI mentioned within the FSR.
Source: www.financialexpress.com”