Windfall treasury gains added to PSB profits in FY21: ICRA

Rate cuts, liquidity aided trading profits in bond portfolios

The onset of COVID-19 resulted in windfall gains for public sector banks (PSBs), with trading profits on their bond portfolios rising sharply after the steep cut in policy rates by the RBI in March 2020, ratings agency ICRA said. The repo rate and the reverse repo rate were cumulatively cut by 115 basis points (bps) and 155 bps, respectively, in March 2020 and May 2020 to 4% and 3.35%, respectively, by May 2020. (100 basis points = 1 percentage point) With a year-on-year deposit growth of 11.4% and muted credit growth of 5.5% in FY21, the liquidity in the banking system remained abundant at ₹5-7 trillion in FY2021, ICRA said in a report. “With the rate cuts and abundant liquidity, the daily average for the benchmark 10-year government securities declined from 6.42% in Q4 FY20 to 6.00% in Q1 FY21, 5.93% in Q2 FY21 and 5.9% in Q3 FY21 before rising to 6.06% in Q4 FY21,” the ratings agency said.