The banking sector is likely to suffer a mark-to-market (MTM) loss of Rs 10,000-13,000 crore in the first quarter of FY23 on rising bond yields.
Rating agency ICRA has estimated MTM losses on bond portfolios at Rs 8,000-10,000 crore for public sector banks and Rs 2,400-3,000 crore for private banks in the first (June quarter) of FY2023.
India’s 10-year benchmark bond yields rose 60 basis points to 7.45 per cent during the quarter ended June 2022, pushing their prices lower. The rise in bond yields comes after the RBI hiked repo rates by 90 basis points from May this year. inflation and an increase in interest rates by the US Federal Reserve. Bond yields have also risen in the US and other countries.
Mark-to-market loss – which is an accounting entry – can occur when government securities held by banks are valued at the current market value. If a security was purchased at a certain price and the market price subsequently fell, the holder would incur an unrealized loss, and marking the security at the new market price would result in an MTM loss.
ICRA Vice President Anil Gupta said: “Despite these expected MTM losses, we expect banks’ net profit to grow by 11-12 per cent in FY2023, which will be higher, if the yields strengthen significantly going forward. There may be a gradual decline in net profit in the year 2023.
Headline asset quality numbers continue to improve for banks with gross non-performing advances (GNPAs) of 6 per cent (lowest in last six years since December 31, 2015) and net NPAs of 1.7 per cent (lowest in last nine years) Is. i.e. 31 March 2013). “With lower slippage rates and better credit growth, we expect GNPA to fall to 5.2-5.3 per cent by March 31, 2023. However, net NPAs may remain in the range of 1.6-1.8 per cent as recovery. And in the absence of restructuring, the upgradation in the current year may be moderate,” it said.
With bond yields rising and investor appetite waning for corporate bonds, corporate bond issuance hit its lowest level in four years in the first quarter of FY23. To meet financial needs, large borrowers have shifted from credit capital markets to banks, which is also helping to improve credit offtake. While rising interest rates may dampen credit demand in the coming quarters, the rating agency has projected a growth of Rs 12-13 trillion, much higher than the incremental bank credit offtake at Rs 12-13 trillion. have put. 10.5 trillion in FY22.