Banks stare at MTM losses on bond investment as yields rise

10-year benchmark yield had fallen to 7.8% in Feb, it was up around 20 bps at 7.99% on Tuesday

Banks are staring at huge losses on their government bond portfolio in the fourth quarter, as yields on most liquid papers have moved up after the hawkish tone of the Reserve bank of India's mid-quarter review of the monetary policy.

Selling pressure from mutual funds, private and foreign banks have also contributed to rising yields. Most banks had booked profit during the third quarter of the current financial year.

According to dealers, banks were investing in government papers heavily when the yields headed south before the policy announcement. The yield on the 10-year benchmark paper had fallen to 7.80 per cent in the last week of February in anticipation of a monetary policy stance that would signal a substantial rate cut in ther next financial year.

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