Falling government bond yields can boost profits of PSBs in Q1: ICRA

However, impact in the remaining 3 quarters of the year may not be much as drop in yields could be muted

Rating agency ICRA said that falling yield on government securities could boost profitability public sector banks in the first quarter ending June this fiscal. ICRA said that falling yields have increased trading volume sharply in G-sec with the banks churning their investment portfolio to increase profitability.

“Considering the decline in G-sec yields and the higher trading volumes, ICRA estimates the profit on sale of investments/reversal of depreciation on investments at Rs. 5,000-7,000 crore in Q1, 2013-14” agency said in a statement.

According to ICRA this amounts to 25-40% of gross profits of this quarter as against 15% in the same quarter last year and a very negligible contribution in the same quarter in 2011-12.

“Yields on the benchmark 10-year Government securities (G-secs) declined by around 60 basis points (bps) in the first two months of 2013-14” ICRA said in a statement.      
 
However the impact may not be much in the remaining three quarters of this year because of drop in yields could be muted, agency added.