Bank profits to be under pressure in next 6 months

The top 10 Indian banks made more than Rs 6,000 crore collectively from treasury operations in the first half of FY10 (Apr-Mar) against only Rs 220 crore in the corresponding period of the previous fiscal. This was possible because bond yields were declining and bond prices were moving up. However, a further softening of yields is unlikely. “RBI’s latest quarterly review of monetary policy indicates that we are at the bottom of a soft interest-rate regime. Thus, high treasury income earned in the first-half from government securities’ (G-sec) portfolio may not recur in coming quarters,” said Ravi Mehta, research analyst, Indsec Securities & Finance. The central bank restored the statutory liquidity ratio (SLR) to 25% from 24%, in a bid to reduce the liquidity in the banking system and send out a signal that a further softening of rates is ruled out.