Softening of yields due to surplus liquidity could help the NPA-saddled banks register Rs 38,200 crore in potential treasury gains in the current financial year, said a report by India Ratings. “This is a ‘significantly large’ number considering the entire banking sector had posted a Rs 23,600-crore profit in 2015-16, while state-run lenders, which control over two- thirds of the system reported a Rs 17,700-crore loss,” added the report.
The rating agency also said the development comes at a time when the banking sector is facing challenging conditions and their profitability levels remain weak owing to continued pressure on asset quality and weak loan expansion. The gains can help the capital-starved banks buffer up their capital levels, while the well-capitalised ones should focus on upping their provision coverage ratios, which have shown a declining trend recently, it said. It can be noted that the glut of liquidity following the demonetisation move, which has seen deposits of over Rs 12 trillion in the scrapped currency notes come into the system, positively impacted the yields.The rating outfit said only Rs 15,400 crore has been raised through the newly-introduced addition tier-I bonds .