Union Bank chairman Debabrata Sarkar (right) in Calcutta on Monday. Picture by Kishor Roy Chowdhury
Banks are awaiting signals from the Reserve Bank of India to check the losses owing to a surge in the bond yields, Union Bank of India chairman Debabrata Sarkar today said.
Banks invest in government securities both for treasury operations and to fulfil their statutory liquidity requirement mandated by the central bank.
Yields on bonds are inversely related to their prices, which imply that lower prices will result in a reduction in the value of bond holdings.
Sarkar expressed hope that the RBI might come up with some solution.
“The RBI is seeking views of various banks. We have informed the RBI about the situation. Maybe within 10-15 days we can have something. I am hopeful that they (the RBI) will take some action,” he said on the sidelines of a banking seminar organised by Ficci. He feared that the total depreciation losses could be around Rs 40,000 crore.
According to Sarkar, banks are seeking a one-time relief by switching a part of their bond holdings from the available-for-sale (AFS) category to the held-to-maturity (HTM) category.
Lenders need to make a provision for the depreciation of bonds in the AFS category. Bonds in the HTM category do not require such provision.
A higher provision towards the depreciation of bond value because of higher yields is expected to put pressure on the margins of banks at a time lenders were betting big on the rising treasury gains to post profit despite a surge in bad loans.
“There should not be a wrong signal in the market that because of depreciation our profits have depleted,” Sarkar said.
On Union Bank’s mark-to-market loss, he said the bank would take a call after the end of the second quarter ending September 30.
He added that the Union Bank was expecting its loan book to grow 15-16 per cent and deposits 14-15 per cent this financial year.