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Banks suffer big loss due to increase in bond yield: ICRA report

According to the ICRA report, despite the reduction in profits, banks will remain profitable overall due to better growth of loans and improvement in operating profit.

Rising Bond Yields A Challenge For Banks: The steady rise in bond yields continues to be a tough challenge for the banks, causing them to suffer a lot. Due to this rise in bond yield, the country’s banks may have to bear a mark-to-market loss of about Rs 13 thousand crore during the quarter of April-June 2022. Indian rating agency Icra (ICRA) has said this in a report released on Tuesday, July 12.

Profits will remain on the back of better loan growth

According to the report, there will be a decrease in the profits of banks during this quarter. But they will remain profitable overall for the entire fiscal year 2022-23 due to better loan growth and strong operating profit margins. The agency believes that during the financial year 2022-23, the country’s financial institutions will be able to register a total credit growth of Rs 12-13 lakh crore, i.e. 10.1 to 11 percent.

Government securities raised challenges

The report said that government securities are more in the investment portfolio of Indian banks. Especially those securities are more which are of long duration. Due to this, the challenges for banks have increased from the perspective of profit on rising bond yields.

According to the report, in the April-June quarter of the current financial year, public sector banks may incur a loss of Rs 8,000 to 10,000 crore on the bond portfolio. For private sector banks, this loss is estimated to be in the range of Rs 2,400 to Rs 3,000 crore.

Increase in operating profit will provide relief

Anil Gupta, Vice President, ICRA, believes that “Despite the mark-to-market loss, we expect banks to remain profitable, considering the operating profit expected to grow by 11-12 per cent in 2022-23.” Increase in operating profit will reduce the impact of ‘mark to market’ loss.

However, he added that if the yield rises further in the times to come, there may be some impact on profits in the financial year 2022-23. The report said that credit growth for banks remained positive in the first quarter of 2022-23. This growth is on all fronts of debt. Icra believes that due to the increase in the interest rate, there is a possibility of impact on the demand for loans in the coming times. But the credit growth in the current financial year may remain up to 11 per cent, which was 9.7 per cent in 2021-22.

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