The Reserve Bank of India’s (RBI) open market operation (OMO) purchases of nearly Rs 2 lakh crore in February and March are likely to boost treasury gains of banks in the fourth quarter. With yields of long-dated bonds easing by 40-45 basis points since April last year, banks’ treasury gains are likely to be around Rs 3,500-Rs 4,000 crore from selling of government securities in OMO auctions in February and March, according to initial estimates by bankers.
“OMOs have provided an opportunity for banks to sell government securities from their HTM (held to maturity) portfolio. The yield on long-dated (7 years to 15 years) papers has fallen by around 40-45 bps since April. The initial estimates suggest that banks can gain by around Rs 3,500- Rs 4,000 crore by unloading long-dated papers,” said the head of a treasury of a private bank.
The yield on the benchmark 10-year G-Sec fell to 6.688% on Friday from 7.116% on April 2 last year.
Currently, banks are not allowed sell more than 5% of outstanding HTM portfolio in a year. Selling securities from HTM in OMO auctions is, however, exempted from the regulatory cap of 5%.
Experts say OMOs provide an additional opportunity to sell securities from the HTM portfolio without the risk of breaching the 5% regulatory cap.
For banks that might have reached their limits on selling from the HTM portfolio, these auctions offer opportunities to sell more and book profits.
“Banks have shown strong interest in OMO auctions, with the last tranche recording a bid-to-cover ratio of nearly 4.50,” V Ramachandra Reddy, head of treasury, Karur Vysya Bank, said.
“A key driver of this demand is that OMO purchases are exempt from the 5% regulatory cap on HTM portfolio sales in a financial year, making these auctions particularly attractive for banks, especially PSU lenders, as they allow for value unlocking from bond portfolios,” he said.