Mumbai: Public as well as private sector banks are expected to make windfall gains on their debt investment portfolios amidst a fall in yields on government securities after the government announced the withdrawal of legal tender character of existing bank notes in denominations of Rs 500 and Rs 1,000.
Yields declined by 53 basis points in Q3FY17 as compared to 49 basis points in Q2FY17. According to ICRA, public sector banks have already reported a profit of Rs 18,000 crore while their private sector counterparts have made a profit of Rs 6,400 crore from sale of investments during the first half of FY17.
The reported treasury gains for PSBs during April-September period have already surpassed the gains made during FY2016. ICRA believes that banks have the potential to make an additional profit of Rs14,600 crore on their investment portfolios. The realisation of profit from such gains will, however, be subject to sale of the investments and hence can be different for different banks depending on the actual sale of the investments.
“The incremental gains from the decline in yields during Q3 for the PSBs are expected to be over Rs10,000 crore. If these gains are booked during Q3, the cumulative treasury profits during the first nine months of FY2017 for PSBs would surpass the budgeted capital infusion of '25,000 crore announced by the government of India (GoI) for FY2017,” said Karthik Srinivasan, senior VP, ICRA.
On an aggregate basis, profits from the sale of investments accounted for 87 per cent of the profit before tax (PBT) of the PSB and private banks during H1 FY 2017. With expectations of further gain on investment portfolios, ICRA estimates the trading profits to account for 90-100 per cent of the PBT during Q3 FY2017.
