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PSU banks may benefit from falling yield on govt bonds

PSU banks may benefit from falling yield on govt bonds

During April-June 2013, public sector banks may earn Rs 5,000 crore to Rs 7,000 crore owing to treasury gains as yield on government securities have declined by 60 basis points during April and May this year. This estimate on the treasury gains of state-run banks was given by Icra in a recent research report.

The report noted that yield of government securities has fallen in the last two months and this will improve earnings of public sector banks.

According to the report, state-run banks are holding Rs 17.6 lakh-crore worth of investment portfolio and this constitute around 25 percent of their total assets as on March 31, 2013.

This portfolio consists of investments made in government securities to meet the 23 percent SLR requirement as well as non-SLR securities like equities and corporate bonds.

The rating agency expects the fall in the yield on government bonds to be subdued in the rest of the year and this may moderate the treasury profit in the remaining three quarters of 2013-14. It says that treasury profits could be due to sale of investments or reversal of depreciation.

The rating agency notes that gains in treasury operation may cushion the adverse impact of higher provisions for bad loans or in order to absorb the impact of higher wage hike for public sector banks.

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