 "Life's tough for bank treasury officials")
Ashish Joshi (name changed) is desperate for some divine intervention these days. For, he believes the “temple” on Mint Road (headquarters of the Reserve Bank), guiding his destiny so far, has turned him away.
Joshi, a senior executive in the treasury department of one of the largest foreign banks present in India, says he isn’t alone. Peers in other banks share his angst.
“The uncertainties in global and domestic markets are a way of life for us. But what hurts is RBI’s apathy,” says Joshi, who has added a few creases on his forehead in recent days.
Just before the May election results, treasury executives were on cloud nine, due to the euphoria in the market. It proved short-lived, as the new government has slowed spending in a bid to keep the fiscal deficit at 4.1 per cent of gross domestic product for the current financial year. And, RBI has capped borrowings from the daily repo window at 0.25 per cent of banks’ net demand and time liabilities (NDTL).
The tight liquidity has resulted in overnight borrowing rates shooting up to even 100 basis points above the repo rate (at which banks borrow overnight money from RBI), which stands at eight per cent.
“RBI has put a limit for overnight borrowings under repo and we are managing it. But if there is an outflow because of the government, how are we going to manage? If in times like these, RBI doesn’t enhance the overnight borrowing limit, we have no option but to ask God for the same,” Joshi says.
The sentiment is shared by other treasury executives. Though RBI provides liquidity under seven-day and 14-day term repos of up to 0.75 per cent of the banking system NDTL, it does not help much. For, treasury officials say, the requirement is more for overnight money.
RBI wants call money rates to hug the repo rate. However, many treasury officials say the former will keep oscillating in a wide range of 7.5 to nine per cent.
RBI Governor Raghuram Rajan is aware of the problems. “We have looked at these oscillations (volatility in overnight call rates). Some of those are because of substantial and unanticipated variations in government balances. We tried to work with that but they just created a certain amount of volatility. We are trying to keep the rates closer to eight per cent,” he’d said in the August review of monetary policy.
Wrong-footed
That’s small consolation for treasury executives. The central bank is being blamed even for higher yields at the longer end of the curve. Manoj Deshmukh (name changed) is a government bond dealer at a state-run bank. Just ahead of the monetary policy review, he’d bought long-tenure bonds from the secondary market. But the RBI decision to cut the statutory liquidity ratio (SLR) caught him on the wrong foot; he hadn’t expected it this time.
“The bond portfolio took a hit and I got the firing of my life from my boss. I regret my decision to buy those bonds, as the yields started rising and continue to be elevated even now,” says Deshmukh, who had hoped the policy stance would be dovish due to easing inflation. Instead, what he saw was the central bank hardening its stand.
In the review, RBI had decided to cut the SLR by 50 basis points to 22 per cent of banks’ NDTL. It also reduced the total holdings of SLR securities in the held-to-maturity category by 50 bps to 24 per cent of NDTL. Due to these steps, the concern in the Street is that banks might sell their illiquid securities in the market.
Sombre outlook
Treasury officials believe in times like these when there are already too many dampeners like the Iraq crisis, Ukraine tensions and fears of interest rate increases by the US Fed, the Reserve Bank’s moves are making the situation more painful.
The profits of banks took a hit in the first quarter of the current financial year due to rising yields. The fear is that this quarter will be similar. Treasury officials like Joshi’s pay packages are linked to the gains they make on their treasury portfolio. By all available indications, their cheques are bound to take a prolonged hit.
A retired treasury expert, who had spent over two decades handling portfolios, has a word of advice for Joshi, Deshmukh and the like. “Handling a treasury portfolio is like a roller-coaster ride. There will be excellent, good, bad and ugly times. Dealers are considered special because they go through these times,” he says.
Joshi, a senior executive in the treasury department of one of the largest foreign banks present in India, says he isn’t alone. Peers in other banks share his angst.
“The uncertainties in global and domestic markets are a way of life for us. But what hurts is RBI’s apathy,” says Joshi, who has added a few creases on his forehead in recent days.
Just before the May election results, treasury executives were on cloud nine, due to the euphoria in the market. It proved short-lived, as the new government has slowed spending in a bid to keep the fiscal deficit at 4.1 per cent of gross domestic product for the current financial year. And, RBI has capped borrowings from the daily repo window at 0.25 per cent of banks’ net demand and time liabilities (NDTL).
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The tight liquidity has resulted in overnight borrowing rates shooting up to even 100 basis points above the repo rate (at which banks borrow overnight money from RBI), which stands at eight per cent.
“RBI has put a limit for overnight borrowings under repo and we are managing it. But if there is an outflow because of the government, how are we going to manage? If in times like these, RBI doesn’t enhance the overnight borrowing limit, we have no option but to ask God for the same,” Joshi says.
The sentiment is shared by other treasury executives. Though RBI provides liquidity under seven-day and 14-day term repos of up to 0.75 per cent of the banking system NDTL, it does not help much. For, treasury officials say, the requirement is more for overnight money.
RBI wants call money rates to hug the repo rate. However, many treasury officials say the former will keep oscillating in a wide range of 7.5 to nine per cent.
RBI Governor Raghuram Rajan is aware of the problems. “We have looked at these oscillations (volatility in overnight call rates). Some of those are because of substantial and unanticipated variations in government balances. We tried to work with that but they just created a certain amount of volatility. We are trying to keep the rates closer to eight per cent,” he’d said in the August review of monetary policy.
Wrong-footed
That’s small consolation for treasury executives. The central bank is being blamed even for higher yields at the longer end of the curve. Manoj Deshmukh (name changed) is a government bond dealer at a state-run bank. Just ahead of the monetary policy review, he’d bought long-tenure bonds from the secondary market. But the RBI decision to cut the statutory liquidity ratio (SLR) caught him on the wrong foot; he hadn’t expected it this time.
“The bond portfolio took a hit and I got the firing of my life from my boss. I regret my decision to buy those bonds, as the yields started rising and continue to be elevated even now,” says Deshmukh, who had hoped the policy stance would be dovish due to easing inflation. Instead, what he saw was the central bank hardening its stand.
In the review, RBI had decided to cut the SLR by 50 basis points to 22 per cent of banks’ NDTL. It also reduced the total holdings of SLR securities in the held-to-maturity category by 50 bps to 24 per cent of NDTL. Due to these steps, the concern in the Street is that banks might sell their illiquid securities in the market.
Sombre outlook
Treasury officials believe in times like these when there are already too many dampeners like the Iraq crisis, Ukraine tensions and fears of interest rate increases by the US Fed, the Reserve Bank’s moves are making the situation more painful.
The profits of banks took a hit in the first quarter of the current financial year due to rising yields. The fear is that this quarter will be similar. Treasury officials like Joshi’s pay packages are linked to the gains they make on their treasury portfolio. By all available indications, their cheques are bound to take a prolonged hit.
A retired treasury expert, who had spent over two decades handling portfolios, has a word of advice for Joshi, Deshmukh and the like. “Handling a treasury portfolio is like a roller-coaster ride. There will be excellent, good, bad and ugly times. Dealers are considered special because they go through these times,” he says.