Banks may see pressure on other income & operating profit in Q1FY23 earnings, Zee Business explains

The banking sector is likely to witness pressure on their other income and operating profit in the current quarter earnings, Zee Business Senior Research Analyst Varun Dubey said while explaining the reason behind the same in his research report. 

With the aggressive interest rate hikes by the Reserve Bank of India, the bond yields have been rising, however, the bonds are witnessing correction, Dubey said. He added, that among all bonds, banks generally have three categories of bonds: till maturity; bonds for trading; available for sale. 

According to Dubey, the third category available to sale constitutes 25 per cent of the total holdings o bonds by the banks. They have around Rs 48.4 lakh crore g-sec portfolio, as per research. 

The bond yields and bond prices have inverse co-relation, said Dubey and due to weakness, the banks may have to book profit in MTM losses as these are short-term in nature, he added. 

To avert pressure on other income and operating profit, banks are seeking the central bank’s intervention with some measures and seek changes in accounting policies, the research analyst said. 

He added, that if nothing happens then banks may see pressure on other income and operating profit. 

On this Zee Business Managing Editor Anil Singhvi said that the banks' ask for the RBI is reasonable unlike to the retail investors, who face losses due to corrections in bond markets.