Higher Ytm Forces Sbi To Take Rs 700 Crore Hit

The rising yield of the dated government papers, triggered by the Reserve Bank of India's tight money policy, is likely to shave off the public sector banking industry's profitability by over Rs 3,000 crore during the current fiscal. This is over 25 per cent of the collective net profit of the 27 public sector banks which together posted Rs 10,227 crore worth of net profit in 1999-2000, up from Rs 6,507.70 crore in the previous year. The State Bank of India alone will be required to make provisioning worth over Rs 700 crore on account of higher yield to maturity (YTM) of its gilts portfolio in the first half of the fiscal 2001 (April-September). "In case the present trend (of rising yield) continues, the year-end provisioning requirement of the State Bank will be over Rs 800 crore," an SBI insider pointed out. The provisioning requirement of big nationalised banks like Bank of Boroda, Bank of India, Punjab National Bank and Canara Bank will vary between Rs 200 crore and Rs 300 crore. The huge provisioning requirement on account of higher YTM of government papers will dent banks' profitability in a big way and may force some of the banks to postpone their initial public offerings. PNB is likely to defer its maiden capital issue because of the sudden drop in profitability following the higher provisioning requirement, an industry source said. According to industry sources, the PSU banks want the RBI to come out with new guidelines on classification of government securities by September to avoid the huge provisioning requirements. "An RBI constituted committee is already looking into the classification of securities. Following the global norms, banks may be allowed to classify some of the securities to `held to maturity' category and hence no provisioning will be required on account of the rising yield," a senior banker said. The RBI last month hiked the benchmark bank rate as well as cash reserve ratio by 50 basis points each and cut banks' refinance facility by 50 per cent leading to about one percentage point raise in the yield of dated securities across all maturities. For instance, the yield of benchmark 10-year paper has gone up from 10.44 per cent on April 3 to 11.43 per cent on August 17. During the same period, the yield of one-year paper has risen by 92 basis points (from 9.67 per cent to 10.59 per cent) while the rise in five-year paper's yield has been 110 basis points (from 9.85 per cent to 10.95 per cent). All listed banks will be required to make the provisioning towards higher YTM of government papers for the first half of the current fiscal ending in September.