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Public sector banks likely to see lower gains in bond book in FY22: Icra
Jun-22-2021

Icra has said public sector banks (PSBs), which reaped windfall treasury gains in FY21, are likely to see much lower gains in their bond portfolios in FY22 due to limited headroom for yields to decline further. It said public sector banks in India reported net profits in FY21 after five straight years of losses, supported by windfall treasury gains. PSBs booked profits of Rs 31,600 crore from this source compared to overall profit Before Tax (PBT) of Rs 45,900 crore in FY21.

They recorded higher gains on the back of higher Statutory Liquidity Ratio (SLR) holdings than private banks. Notably, the trading gains for public banks in FY21 exceeded the capital infusion of Rs 20,000 crore received from the Government of India (GoI). The onset of Covid-19 resulted in windfall gains for public banks with trading profits on their bond portfolios rising sharply after the steep cut in policy rates by the Reserve Bank of India (RBI) in March 2020.

It added with the rate cuts and abundant liquidity, the daily average for the benchmark 10-year Government securities declined from 6.42 per cent in Q4FY20 to six per cent in Q1FY21. They shed another 5.93 per cent in Q2FY21 and 5.9 per cent in Q3FY21 before rising to 6.06 per cent in Q4 FY21. The significant volatility in bond yields also provided banks with ample trading opportunities.

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