| The yield on the ten-year benchmark government security shot up by 17 basis points from Friday's levels by the unexpected cash reserve ratio (CRR) hike announced on Saturday. |
| While several banks cannot take any further rise in interest rates and are already set to post trading losses for the current quarter, some large PSU banks may be able to handle another 25-125 basis points rise in interest rates, said a treasury chief of a PSU bank. |
| "Nobody can be immunised for posting losses at this stage. Irrespective of whether we sell or transfer the securities to the 'held to maturity' category, banks will book losses," said the chief dealer in a bank. |
| With the 10 year yield rising to 6.65 per cent in mid-August, the banking sector estimated to have eroded the market value of the gilts holding by over Rs 50,000 crore. |
| Since then, the yield came down "" as prices rose "" to less than 6 per cent recovering a large part of the eroded value of bonds. With the yield again moving northwards, bankers expect to post higher trading losses. |
| Banks have been recently given freedom to shift parts of their 'available for sale' portfolio to the 'held to maturity' category. Each bank's ability to shift will depend on how much of a hit it can take; any bank conducting a transfer will post a trading loss for the quarter. |
| "We are studying the amount of securities that we can shift after which we will need baord approval. We plan to do the transfer before September 30. The longer we wait the worse it is," explained the chief dealer of a PSU bank. |
| Said a more optimistic bank official, "The ten-year at 6.25 per cent is the maximum yield banks can be comfortable with. Beyond that level most banks will post trading losses," said a bank official. Today the ten-year government security closed at 6.10 per cent up 17 basis points from Friday's close of 5.93 per cent. |
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