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MUMBAI: Indian bond yields have fallen to their lowest in nearly two years, helping lenders log treasury gains and raise capital that could now be used to enhance productive lending.

At 6.58%, the benchmark yield has fallen to the lowest since September 11, 2017, Bloomberg data showed. Since Fridays Budget, in which the government announced the decision to sell sovereign bonds overseas for the first time, yield on the benchmark debt shed a further 16 basis points, taking the cumulative decline in FY20 to 75 bps.

"Banks should report healthy treasury gains with sharp decline in bond yields," said Nitin Aggarwal, banking analyst at Motilal Oswal. "Treasury gains will help offset the elevated bad loan losses and ageing provisions that these banks are making.”

Overseas borrowing plans should further ease concerns over crowding out in the debt market.

“With the government looking to increase the mix of external borrowings and RBI recently turning its policy stance to accommodative, bond yields are likely to remain benign, which will support earnings at PSU Banks," he said.

Motilal Oswal expects the State Bank of India, Punjab National Bank and Canara Bank to benefit the most from plunging yields.

Available for Sales (AFS) and Held for Trading (HFT) portfolio of public sector banks ranges from 27-45%. SBI maintains the highest share of AFS+HFT portfolio at 45% of total investments, the brokerage said.

The government also announced infusion of Rs 70,000 crore of capital into state-owned banks over the next three years, leading to disappointment among traders who penciled in larger capital support.

“The recap programme is a bit stretcheRead More – Source