Public sector banks are in a “sweet spot” in the ongoing third quarter as they are in a position to make some tidy treasury gains on their Government securities’ portfolio, say bankers.

This will be possible given that the yields of the benchmark 10-year G-secs has seen a sharp downward spiral from a level of 8.85 per cent in March this year to 8.26 per cent on Monday.

For banks with G-sec as holdings beyond the statutory liquidity ratio (SLR) requirement of 22 per cent, the latest downward spiral of G-sec yields is a godsend, given the weak growth in credit offtake. The downward spiral means appreciation in the price of these securities, leading to potential gains that could be booked as profits by banks holding 10-year G-secs.

Booking treasury gains will bolster the bottomline for several public sector banks that are already bearing the brunt of a sharp decline in credit offtake this fiscal. “The sharp downward spiral in yields of 10-year G-secs has come as a big relief for most banks. This will result in banks booking more treasury gains in third quarter than in the first two quarters,” V Kannan, Chairman and Managing Director, Vijaya Bank, told BusinessLine .

However, the actual strategy would be bank-dependent although the opportunities for treasury gains have certainly increased for all banks, he said.

The extent of treasury gains that could be booked would depend on the proportion of the securities that is kept under the Held-to-Maturity and Available-for-Sale categories, it was pointed out. The Reserve Bank of India allows banks to — once a year — shift securities from HTM to AFS. Although many banks opted for this in the first quarter, they could not entirely offload them in the market in the first quarter.

Benefits to vary The average yields had fallen 10-20 basis points in the first two months of the current fiscal compared with the position in March. But now the extent of the downward spiral is significant, given that yields have dropped 60 basis points between March and now, leaving room for banks to book sizeable treasury gains, say bankers. “The quantum of benefit will vary. It all depends on whether banks want to book gains now or wait,” SR Bansal, Chairman and Managing Director, Corporation Bank, said. There was a possibility of yields going further down in the coming days, he added.

PSBs see treasury gain opportunities not only from their own holding of G-secs, but also from trading in such instruments. In the first quarter of this fiscal, the treasury gains were good. However, in the second quarter they were quite modest. The third quarter will present better opportunities, a banker said.

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