Bond Yields: Banks lose 13000 crores due to increase in bond yield, know where it can affect

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The report said that government securities are high in the investment portfolio of banks. Especially those securities, which are of long duration. Rising bond yields pose challenges from a profit perspective.

Banks may incur a mark-to-market loss of Rs 13,000 crore at current market value on their investments in the April-June quarter due to rising bond yields. Domestic rating agency Icra said on Tuesday that profits would be marginally softer for the quarter ended June 30, 2022. But, with good credit growth and operating profit, banks’ profits are expected to remain stable in 2022-23. Bank credit is expected to grow by 10.1 to 11 per cent in 2022-23.

The report said that government securities are high in the investment portfolio of banks. Especially those securities, which are of long duration. Rising bond yields pose challenges from a profit perspective. In the April-June quarter of the current financial year, public sector banks may suffer a loss of 8,000 to 10,000 crores on the bond portfolio. Private sector banks may incur a loss of Rs 2,400 to Rs 3,000 crore.

…then profit may be affected
Anil Gupta, Vice President, ICRA said, “Given the potential for operating profit to grow by 11-12 per cent in 2022-23 despite the loss, we expect banks to remain profitable.” Increase in core operating profit will reduce the impact of ‘mark to market’ loss.

If yields rise further in the times to come, there may be some impact on profits in 2022-23.

Increase in interest rate will affect loan demand
Credit growth for banks remains positive in Q1 of 2022-23. This growth is on all fronts of debt. Icra said that due to the increase in the interest rate, there is a possibility of impact on the demand for loans in the coming times.

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