The Hindu Business Line : Banks may post higher treasury income in Q2

After more than about 15 months, banks' income from investments could be in the green, in the second quarter, as interest rates were stable in July-September, bankers say.

Reports that the US Federal Reserve may decrease or stop hiking interest rates and low crude oil prices should reduce the pressure on the price of money, believe bankers.

Yields on government paper have come down, pushing up their prices, and boosted trading volumes in the bond market in the second quarter. Yields are inversely related to prices and bank treasuries gain when interest rates are down. "The government security market has started behaving like the equity market, reacting to sentiments. But it is safe to say that the second quarter has been fairly stable for the treasury. At least banks with large treasury operations, like State Bank of India and Bank of Baroda, are unlikely to see a dip in their treasury incomes, if not a rise," said Dr Rupa Rege Nitsure, Chief Economist with Bank of Baroda.

The yield on the benchmark 10-year 2016 gilt, which stood at 7.67 per cent on June 1, has slipped marginally to 7.64 per cent on September 29. However, during the period the yield had touched 8.13 per cent on fears of a rate hike by the RBI.

Also, as banks built deposits to fund the growing demand for credit, their Statutory Liquidity Ratio (SLR) requirements or the mandatory requirement of government papers will go up. This genuine demand for SLR was also a reason for banks picking up G-Secs and enhancing volumes during the quarter, said a dealer with a private bank.

"Most banks have been quite aggressively mopping up public monies. But the corresponding investment in SLR securities has not gone up and the gap will have to be bridged.

Public sector banks started buying government securities for SLR requirements, upping prices and lifting volumes," said Mr D Sampat Kumar, Head Treasury, IndusInd Bank.

Treasury profits could also benefit from a rise in equity trading incomes (Banks are turning to be keen players on the bourses). Yields on government paper have come down by about seven basis points in a month's time in the second quarter, pointed out Mr Bhaskar Sen, General Manager, Treasury, Union Bank of India.

"Going ahead no further hike in interest rates is expected globally. In India, while inflation is under control and liquidity is comfortable, the trade deficit is in the negative," added Mr Sen.

Union Bank was very active on the equity side and Bank of India had transferred securities to the held to maturity portfolio which took care of the profits, said the bank officials.

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