Bank stocks rally on RBI's Operation Twist as big MTM treasury gains seen

Bank stocks gained on Friday as bond yields softened following Reserve Bank of India’s (RBI) announcement of simultaneous sale and purchase of government securities. The benchmark 10-year government bond yield slipped 14 basis points to 6.61 per cent.

All constituents of Nifty PSU Bank index traded in the green, with Syndicate Bank being the biggest gainer, up 2.96 per cent at Rs 29.60. Union Bank of India advanced 2.9 per cent to Rs 58.50, Allahabad Bank 2.69 per cent to Rs 19.10 and Indian Bank 2.48 per cent to Rs 107.65. Nifty PSU Bank index gained 1.91 per cent to 2,561.

Nifty Private Bank index was up 0.17 per cent at 17,854 at 11 hours (IST). YES Bank gained 2.91 percent at Rs 51.35, RBL Bank 1.21 per cent to Rs 346.50 and ICICI Bank 0.93 per cent to Rs 545.20. Kotak Mahindra Bank, IDFC First Bank and HDFC Bank slipped marginally in early trade.


Siddharth Purohit, banking analyst at SMC Global, said softening of bond yield towards the end of the quarter could be one of the reasons for today’s gain in PSU banks. “At the quarter end, banks have to show mark to market (MTM) profit and loss on the basis of quarter-end bond yield. Bank’s treasury portfolio suffers losses if yield goes up and vice versa,” he said.


He said due to RBI’s OMO announcement liquidity is going to increase and the bond market should react positively. “If liquidity goes up, yields will come down. This in turn would means higher treasury profits on the bond portfolios for banks,” Purohit said.

Year-to-date, Nifty PSU Bank index is down 16.97 per cent. In the last one week, it has shed 0.25 per cent.