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Banks pay for bond yield surge

Mumbai: Banks are estimated to suffer mark-to-market (MTM) losses of Rs 15,500 crore in their investment portfolio in the third quarter of this fiscal because of a spike in the yields of government securities, credit rating agency Icra has cautioned.

The yields have risen because of concerns over a higher fiscal deficit. The rates on the benchmark 10-year securities had risen 67 basis points. Yields and government security prices move in the opposite direction.

According to Icra , the recent surge in bond yields is expected to result in MTM (valuing an asset at the current price) losses on the available-for-sale (AFS) portion of banks' investment portfolio. The MTM loss for all banks is estimated at Rs 15,500 crore .

Public sector banks till September had a larger share of the available-for-sale investments than the private banks, said Karthik Srinivasan, group head, financial sector ratings, Icra.

They will have to bear the bulk of the losses, at 80 per cent, on this count.

"With losses before tax of Rs 5,624 crore during the first half of 2017-18, MTM losses will add to losses and erode capital ratios for public sector banks.

"In contrast, private sector banks are relatively better placed to absorb the MTM losses with profit before tax of Rs 30,994 crore during the same period. With an unexpected surge in yields and consequent increase in losses, the government may need to increase the capital it intends to frontload into the PSBs by the recapitalisation bonds," he added.

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