State-run banks on Monday bought a record amount of sovereign bonds after a selloff, following the naming of Urjit Patel as the governor of the Reserve Bank of India.
Public sector banks bought a net R13,390 crore ($2 billion) of securities, the most since 2006, according to data compiled by Bloomberg. Foreign and private sector banks were net sellers of the notes.
Public sector banks have been investing heavily in debt securities with a view of selling them off during a rally to support their earnings, which have been subdued over the last few quarters owing to higher provisions for non-performing assets.
Most market participants believe the selloff was a “one-time” reaction to Patel’s appointment and that yields are still expected to continue falling over the course of the current fiscal.
“With credit growth still slow, state-run banks are deploying funds to buy bonds,” said Ajay Manglunia, Mumbai-based head of fixed income at Edelweiss Financial Services. “During a rally they sell and book treasury profits to support their earnings, which have been weighed down by higher provisioning for bad loans.”
(With agency inputs)