With yields on sovereign bonds hardening, Indian banks are staring at ₹20,000 crore losses in the bond portfolio in the Jan.-March quarter, which is three times more than the losses incurred in the Oct.-Dec. quarter, Credit Suisse said in a note to its clients.
The report said banks were having huge liquidity post the demonetisation exercise of November-December 2016 and since there was no credit demand, banks invested heavily in government papers. As a result, banks hold 10% more bonds than what is mandated, which is the highest in last 12 years.
Banks are required to hold 19.5% of their deposits in government papers.
The brokerage suggested intervention by the central bank to help banks to cut losses.
‘RBI must intervene’
“RBI intervention by either raising the HTM [held to maturity] threshold or buyback of treasuries may be needed to help contain the MTM [mark-to-market] hit for the banks,” the report said.
During the Jan.-March quarter, yields on the 10-year benchmark government paper has hardened by about 48 bps.
“Rising bond losses will add to concerns on the adequacy of the recap Plan,” the report by the brokerage further noted.
