ET Intelligence Group: Rising bond yields are likely to add to woes of the banking sector which is now staring at the possibility of more bad loans following the Reserve Bank’s latest revision of the framework for stressed assets. Higher yields result in falling bond prices thereby affecting treasury income of banks.According to a study by credit rating agency, India Ratings & Research, the large loss due to a quick rise in the bond yields in the past six weeks will result in large mark-to-market losses on lenders’ short-term investments. This will lead to a considerable fall in the banking industry’s treasury income in the coming quarters.The agency expects the banking sector’s treasury loss will be Rs 30,500 crore in FY18. The public sector banks may contribute 81 per cent to the losses. The sector had reported Rs 62,800 crore in treasury gain in FY17.The reliance of Indian banks on treasury income has increased gradually over the past few years amid slower credit offtake and benign interest rate regime until a few quarters ago.
Source: Economic Times February 14, 2018 02:37 UTC