The rating agency ICRA has projected that banks may suffer mark-to-market (MTM) losses of Rs 10,000-13,000 crore in their bond portfolios due to rising bond yields.
In Quarter 1 (Q1) FY 23, the adverse impact of hardening of yields is expected to be felt most by public sector banks. MTM losses on bond portfolios for them could be Rs 8,000-10,000 crore. For private banks such losses could be Rs 2,400-3,000 crore.
The yield on 10-year government of India benchmark bonds rose sharply to 7.43 per cent on 30th June , 2022 from 6.86 per cent on 31st March, 2022. While profitability may moderate in Q1 FY2023, overall profits for banks are likely to remain steady in FY2023 driven by improved loan growth and core operating profits, the rating agency said in a statement.
Further, rising interest rates may moderate credit demand in the coming quarters, we expect incremental bank credit offtake of Rs 12.0-13.0 trillion. This is well above the incremental bank credit offtake of Rs 10.5 trillion in FY2022, it added.
However, the recent rise in bond yields would pose challenges for banks in the current fiscal, banks enjoyed gains on bond portfolios during the past two years. Hence, the MTM losses could now be seen in conjunction with the profits made by the banks in the last two years.