Banks face Rs 50,000-cr MTM losses as bond yields cross 9%

Aug 20 2013, 04:58 IST
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SummaryWith the benchmark bond yield soaring above 9% for the first time since August 2008, banks are staring at potential mark-to-market (MTM) losses worth nearly Rs 50,000 crore on their books in the second quarter.

Vishwanath Nair & Aftab Ahmad

With the benchmark bond yield soaring above 9% for the first time since August 2008, banks are staring at potential mark-to-market (MTM) losses worth nearly Rs 50,000 crore on their books in the second quarter.

According to an estimate by the Reserve Bank of India, the hardening of yields by 100 basis points will impact banksí investment portfolio ó including held for trade (HFT) and available for sale (AFS) portfolios ó by R29,927 crore, constituting 0.34% of total assets and 3.36% of capital funds.

Among bank groups, the impact was most discernible for public sector banks (PSBs) on all parameters. PSBs will take the largest hit by R21,588 crore based on positions as at the end of June.

On July 15, the RBI had first announced liquidity tightening measures to help the falling rupee. This had started pushing the yield upwards significantly. Between then and now, the 10-year benchmark yield has gone up by 167 bps.

ďNaturally, all banks will suffer from it...We have sounded our concerns to the RBI. We hope that it will come up with some solutions,Ē said Union Bank of India CMD D Sarkar.

Among the worst hit will be public sector banks like Punjab National Bank and Bank of India. According to analysts at Credit Suisse, for every 100 bps increase in bond yield, Punjab National Bank (PNB) is likely to see a hit of 21% on its estimated profit before tax (PBT) for the current financial year. According to an estimate by Bloomberg, PNB's estimated PBT for the year stands at Rs 10,310 crore for FY14. For a 167 bps movement in the yields, a 21% hit to PBT would work out to nearly Rs 4,650 crore for the year.

For State Bank of India, India's largest bank, the PBT for the year is expected at Rs 20,048 crore, while the hit due to a 100 basis point change in bond yields is calculated at 8.6%. As per the increased bond yields, this would amount to nearly Rs 2879 crore for the year.

In the beginning of the financial year, yields were on a downward trend, reflecting a falling interest rate scenario in the market. Since credit growth was low, banks had tied up their excessive liquidity into government securities in their AFS portfolios. The bank's AFS portfolio stands at Rs 1,60,000 crore as on June 30, of which Rs 1,10,000 crore is under government

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