Q4 will be tough: OP Bhatt

Concerned over the rise in bond yields which can cause mark-to-market losses, State Bank of India Chairman OP Bhatt today said the current quarter will be one of the toughest quarters in recent times. SBI is the country’s largest lender.

“The fourth quarter (January to March 2009-10) will be quite tough. If you look at the 10-year government security rate, it is going up. If banks have excess government security, like we have, then there will be some depreciation. We expect mark-to-market losses on this account,” Bhatt said at the sidelines of a seminar.

Yield on the benchmark 10-year government bond has been increasing for the past two weeks on fears of higher government borrowing and the rise in food inflation. Yield of the highly traded 6.35 per cent 2020 government security increased 31 basis points in February, as compared to 1 basis point in January, and closed at 7.88 per cent Friday.

However, Bhatt said that he expects the government not to borrow more in 2010-11 than in the current financial year. “That is what the government has been saying. There will also be a gradual withdrawal of the stimulus,” Bhatt said.

On a standalone basis, SBI reported a net profit of Rs 2,479 crore in the third quarter of 2009-10, which was just 0.03 per cent higher than in the year-ago quarter, because it had to take into account mark-to-market losses of Rs 246 on its bond portfolio. The bank had invested a portion of its assets — estimated at Rs 75,000 crore — into such instruments to shore up its statutory liquidity ratio.

However, the excess liquidity of the bank has not come down significantly, Bhatt said. As a result, though some of the banks have hiked the deposit rates since January, SBI said it is not likely to change both the deposit and lending rates till June. “I don’t think it will happen till May or June, till the time this liquidity surplus goes away,” Bhatt said. He also said that with banks required to pay interest on savings account deposits on a daily basis from April, SBI’s profit margin will be impacted by 20 to 25 basis points.