Highest Ever: Banks’ treasury gains set to top Rs 38,000 crore

Prime Minister Narendra Modi’s demonetisation drive may result in treasury gains worth Rs 38,200 crore for public and private banks in India.

As per India Ratings, “Indian banks will register about Rs 38,200 crore of treasury gains for FY17, as the softening of yield continues due to uptick in liquidity.”

“It would be the highest ever treasury gains for banks,” it said.

Reserve Bank of India (RBI) data show that over Rs 13 lakh crore out of the total demonetised currency of around Rs 14.5 lakh crore has already made its way back to bank deposits.

“A surge in deposits, due to demonetisation will increase demand for government and high-rated corporate bonds, and is likely to put downward pressure on yield under the current tepid credit demand scenario.”

What this simply means is that higher deposits will lead to lowering of interest rates for various loans, including industrial and retail loans.

Presently, public sector banks (PSBs) are going through tough times on the back of ‘stressed assets’ along with low credit demand from corporate and limited retail footprint. 

Till now, banks credit base has declined by Rs 2.37 lakh crore (3% FY17 year-to-date decline), lowest in at least past ten years.

India Ratings said that it expected treasury gains on the back of softening of yield will provide helping hand to banks in managing their profitability further. The gains are expected to bring in improvement in banks return on asset (ROA) and also capital requirement.