[sbinews] SBI may shift gilts to HTM category (Business Line)
- From: Rajendra S Pai <rspai@xxxxxxxxxxxxxxx>
- To: sbinews@xxxxxxxxxxxxx
- Date: Wed, 16 Feb 2005 20:07:39 -0800 (PST)
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SBI may shift gilts to HTM category
(Business Line)
Rukmani Vishwanath
N.K. Kurup
`Anything that SBI does will certainly impact the market because of its
sheer size. Once SBI makes the transfer, a lot of counters for those
securities will become illiquid'.
Mr A.K.Purwar, Chairman, SBI
Mumbai , Feb.16
STATE Bank of India may take advantage of the current softening in bond
yields and shortly remove a portion of its investments in government
securities out of active trading and hold it for redemption till maturity.
By doing so at the current yields, the bank may be able to soften the blow
it may suffer by transferring the securities at the market price, which has
fallen far below the purchase price, according to analysts.
Mr A.K. Purwar, Chairman, SBI, told Business Line, that the bank is
considering shifting some of its SLR securities from the available-for-sale
basket to the held-to-maturity (HTM) category.
Commenting on the bank's strategy in managing its investment portfolio, Mr
Purwar, said, "We are having a very close look at it. This is a good window
of opportunity for those who haven't made the transfer. This is the time
that a call could be taken on this".
Analysts are of the view that SBI's move to shift securities to HTM might
impact the market in several ways.
"Anything that SBI does will certainly impact the market because of its
sheer size. Once SBI makes the transfer, a lot of counters for those
securities will become illiquid. In fact, some market participants holding
some of those securities might jack up the prices of those stocks as their
availability will be lesser," said an analyst with a leading primary dealer
in debt securities.
"In any case we are seeing very thin volumes in the market. Out of the 135
or 140 government securities in circulation only 2-3 papers are seeing
active trading. After SBI shifts to HTM we might see only the benchmarks
being traded for a while," he said.
Over the past couple of quarters, even as the threat of rising interest
rates loomed large over the domestic debt markets, some top banks decided to
shift around Rs 70,000 crore worth of SLR securities to the HTM category
from the basket in which they were available for sale.
In September last year, the Reserve Bank of India had, as a one-time
measure, allowed commercial banks to transfer government securities in
excess of the prescribed 25 per cent limit, to the HTM basket, to hedge
against the threat of a hardening in bond yields.
While most banks both public and private decided to avail themselves of the
facility, top banks like SBI and Bank of Baroda decided not to join the
bandwagon based on the view that bond yields might see some further
softening.
After much deliberation, Bank of Baroda finally shifted Rs 8,450 crore worth
of government securities to the HTM basket on February 7. However, Mr P.S.
Shenoy, Chairman, BOB, maintained, that the bank's view on interest rates
was that it will remain stable in the medium term. "We have transferred only
15 per cent of SLR securities to the HTM category. The remaining 85 per cent
is still in the AFS category, as our view is that yields will soften in the
medium term," he said at a recent analyst meet.
The whole price index (WPI) based inflation touched an eight-month low at
5.25 per cent for the week ended January 29. Last year, the annual WPI-based
inflation rate touched a three-and-a-half-year high of 8.17 per cent for the
week ended August 21, 2004.
The ten-year benchmark gilt yield has softened to around 6.49 per cent
levels after peaking at 7.2 per cent levels late last year. Debt market
analysts contend that those who haven't made the move to HTM, may do so now.
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