The Hindu Business Line : PSBs offer to do treasury management for PFs

High level banking sources said that this proposal was made since most of the PFs were barely breaking even. PFs pay out an average interest of about 9 per cent. But their average earnings was far lower than this figure putting several of them in deficit.

Besides, none of the exempted category PFs is in a position to make big gains through treasury management, since most lack the skills for doing so. Exempted category PFs currently have a corpus close to about Rs 75,000 crore, the bulk of which is parked in government securities.

Bankers said the pitch for outsourcing treasury management was made after the Government allowed for an increase in the PF interest rates to 9.5 per cent and also allowed investments in equity up to 5 per cent of the investible corpus.

Bankers said that outsourcing treasury management would help cutting the losses of PFs. Some of these PFs are saddled with large volumes of low-coupon securities. In fact, PFs and insurance companies were the worst hit during the last three years when yields softened resulting in a dip in their mean yield on assets to less than 8 per cent.

The softening had resulted in a drop in their incomes, since most of them were dependent on interest flows. PFs traditionally hold all their investments till maturity. For banks such outsourcing deals tend to neutralise the losses in treasury operations. Treasury operations till the middle of last year contributed to almost 60 per cent of the banks' bottomlines last year.

Since then with interest rates on the ascent, share of treasury operations in the profits have drastically dropped. The ten-year yield to maturity since the last fiscal to this fiscal has shot up by over 1.5 per cent, shaving off a large chunk of banks' bottomlines through depreciation.

Bankers accordingly are attempting to push up their fee-based incomes to offset the drop. Fee-based incomes currently constitute barely 5 per cent of their gross incomesAlready some banks are undertaking treasury operations for some of the large corporates in the country as part of their cash management.

Bankers said that for PFs, none of them had fixed any fees or commissions, since the proposal was still in the nascent stage. Fees or commissions would have to be decided by the Employees Provident Fund Organisation, they added.

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