On a segregated basis, this would mean mark-to-market losses of ₹8,000-10,000 crore for public sector banks, and ₹2,400-3,000 crore for private lenders in the first three months of FY23. The greater impact on public sector banks stems from their higher holding of government securities (g-secs) of longer tenor, it said.
Anil Gupta, vice-president, Icra, said despite these expected mark-to-market losses, the rating agency estimates net profits of banks to remain steady, given the expected growth of 11-12% in their core operating profits in FY2023. However, if the yields harden substantially going forward, there could be a sequential moderation in the net profits in FY23, said Gupta.
According to Icra, contrary to trends of negative incremental credit during the first quarter of a financial year, the incremental credit growth for banks remained significantly positive in Q1 of FY23 and was supported by credit growth across all segments.
“With rising bond yields and reducing investor appetite for corporate bonds, corporate bond issuances stood at the lowest level in four years in Q1 FY23. To meet funding requirements, large borrowers have shifted from debt capital market to banks, which also is aiding the improvement in the credit offtake," the rating agency said.
While rising interest rates may moderate credit demand in the coming quarters, Icra expects incremental bank credit offtake of ₹12-13 trillion in FY23, well above the incremental bank credit offtake of ₹10.5 trillion in FY22.
“With 43% of the floating rate loans of banks linked to external benchmarks (77% of loans are floating for banks) and the higher increase in the external benchmark compared to the marginal cost of fund based lending rate (MCLR), rate transmission is expected to be faster for banks in this cycle. This, coupled with the lag in the upward repricing of deposits and improved credit growth, will aid the improvement in the operating profits of banks," Icra said.
