Mumbai, Mar19: The bottomlines of the State Bank of India, Bank of India, Punjab National Bank, Bank of Baroda and the oldest private bank -- Vysya Bank -- are set for a big boost following the crash in yield-to-maturity (YTM) of dated government securities over the last few days."Thanks to the crash in YTM, we may be able to mark-to-market the entire securities portfolio," a Mumbai-based public-sector bank chairman told The Financial Express. Banks are allowed to write back excess provisioning on account of lower YTMs. Bankers expect the Reserve Bank of India (RBI) to fix the YTM on 10-year paper at 11.90-12 per cent for the financial year 1997-98, about 160 basis points lower than the YTM on 10-year security in the previous financial year.
The industry is likely to reap a harvest of over Rs 4,000 crore out of the lower YTM in the current fiscal. The lowering of YTM is the fallout of a 100 basis point cut in the repo rate to 8 per cent and a 50 basis points cut in bank rate to 10.5 per cent. Inits latest price list effective from Thursday, the central bank has fixed the YTM of 2-year paper at 10.85 per cent and 4-year paper at 11.30 per cent.
The RBI revised the YTM of 9-year paper to 12.03 per cent from 12.20 per cent, sending a clear signal that it does not want banks to take a hit on their portfolio of long-term securities.
The apex bank is, however, unlikely to give in to the demand from the new generation private-sector banks and foreign banks for a 10-year YTM of 11.85 per cent. This was the coupon at which the central government borrowed 10-year funds during the current financial. "We want the Reserve Bank of India to bring down the YTM to 11.80 per cent," treasury chief with a new private bank said.
With the apex bank sending clear signals of a return to the easy-money regime by rolling back the tight money measures announced on January 16, analysts said the RBI is consciously bringing down YTMs with an eye on the new government's borrowing.
The central government's borrowing isexpected to gross about Rs 70,000 crore in the next fiscal. "To sustain such a high level of borrowing, the Reserve Bank of India has to bring down rates to a manageable level," economist with a leading foreign brokerage said.
Bankers are expecting a cut in cash reserve ratio (CRR) which will infuse funds into the banking system. "A CRR cut will have a huge impact on the short-term securities where the YTM for the current fiscal is still higher than that of the previous year," debt analyst with a local firm said.
The YTM on securities maturing in less than than two years on March 31, 1997 was 10.04 per cent, while this year it is likely to be around 10.30 per cent.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
