Bonds Don’t Pay, Banks Face Dull March Quar­ter

RBI’s as­set qual­ity re­view and fall in fee in­come add to key wor­ries

The Economic Times - - Finance & Commodities -

Saloni Shukla & Pratik Bhakta

Mum­bai: Banks face a dou­ble­whammy in the March quar­ter as they take a hit from bond hold­ings and fee in­come as dig­i­tal trans­ac­tions ease amid in­creas­ing cash con­di­tion. The last quar­ter of the fis­cal may see them turn­ing in their worst per­for­mance since the Reserve Bank of In­dia or­dered As­set Qual­ity Re­view.

Large trea­sury gains have helped most state-run banks post prof­its in the De­cem­ber quar­ter, but with yields ris­ing nearly 40 ba­sis points, the trea­sury gains of banks are ex­pected to be tepid which may keep them from re­port­ing prof­its in this quar­ter.

“Q4 will be an­other chal­leng­ing quar­ter as most of the trea­sury gains have been wiped out, also no im­prove­ment is ex­pected on the credit off­take front; so I think banks may not post some great earn­ings in the last quar­ter,” said Sid­dharth Puro­hit, se­nior re­search an­a­lyst at An­gel Broking. “In­ter­est costs will also be up be­cause banks are sit­ting with a lot of de­posits and have no place to de­ploy those funds. I also be­lieve that some game plan should be ex­pected from RBI on what next as most of the bad loan recog­ni­tion has been done.” G-sec

yields have firmed up about 40 ba­sis points fol­low­ing the Reserve Bank of In­dia’s pol­icy meet and 10-year Gsec, now at 6.9%, is at a higher level than on De­cem­ber 31, 2016. Given sig­nif­i­cant ac­cu­mu­la­tion of gov­ern­ment se­cu­ri­ties at low yields in the pre­vi­ous quar­ter, banks may have to take mark-to-mar­ket losses on those se­cu­ri­ties.

“As this mag­ni­tude of gains will not be avail­able in 4Q post the re­cent 40-ba­sis-point rise in yields and added op­er­at­ing profit pres­sure from mar­ginal cost of funds based lend­ing rate (MCLR) cut, and rise in pen­sions, many PSUs will be pushed back into losses in 4Q,” said Ashish Gupta, re­search an­a­lyst at Credit Suisse, in a re­port. Pub­lic sec­tor banks, which have booked trea­sury gains of more than .₹ 12,500 crore, have man­aged ag­gre­gate prof­its of only .₹ 500 crore. Loan growth for most banks dur­ing the third quar­ter of this fis­cal also de­cel­er­ated sharply, off­set­ting the ben­e­fit of large de­posit in­flows in cur­rent ac­counts and sav­ings ac­counts, and drop in fund­ing costs. “Un­less banks are able to re­cover money from trou­bled as­sets, Q4 is not look­ing any bet­ter and most of the trea­sury gains will not be avail­able in this quar­ter,” said Karthik Srini­vasan, vice pres­i­dent, ICRA.

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