Consolidation of public sector banks may boost sentiment in the near term

Lower MTM provisioning already making these lenders attractive

Friday’s announcement on consolidation of public sector banks (PSBs)  has come as a shot in the arm for the sector. State-owned banks will continue to benefit from lower yields on government bonds (G-Secs). Yields on G-Secs have slid a further 32 basis points (bps) to 6.56 per cent as of August 2019, after having dropped 47 bps sequentially to 6.88 per cent in the June 2019 quarter (Q1).

According to the RBI, banks have to account for a change in market value (referred to as MTM) of G-Secs held in the available for sale (AFS) basket on a sequential basis. PSBs