Banks to ask RBI to stagger MTM losses

Banks will ask the Reserve Bank of India RBI to allow them to spread provisions toward mark-to- market MTM losses over several quarters after a sharp hit in June quarter on this account. Bank executives aware of the matter said that the RBI had turned down a similar demand by banks in June after anticipated losses in the first quarter. The banks will ask that provisions for such losses be housed under provisions and contingencies after operating profits are estimated, which will ensure operating profits are not hit due to these notional losses. According to the banks, this would give a better estimate of operating performance. One person said that this will help in avoiding fluctuations in operating profits. The country's largest lender has reported a 6.7% drop in its standalone profit after tax to 6,068 crore for the June quarter, after it booked 6,549 crore MTM losses on its investment book. Its operating profit fell to 12,753 crore in the April-June period from 18,975 crore in the year before, which was dented by MTM losses. In the past, the RBI had allowed banks to stagger MTM losses over four quarters starting December 2017. The executive cited above said we will reach out to the RBI one more time. Some banks have raised this issue at a recent meeting of lenders through the Indian Banks' Association. Bond yields and prices are inversely related - when market interest rates rise, bond prices fall to align yields with higher rates. The decline causes losses when banks value their bond portfolio at market price. In the June quarter, banks lost more than 1,409 crore MTM. The total banking sector MTD losses were Rs 10,000 -- 13,000 crore in the first quarter of FY 23. The RBI has raised the repo rate by 1.4 percentage points to 5.4% in three instalments since May 4. The yield on benchmark 10 year paper has hardened from 6.9% to around 7.35% at the beginning of the current fiscal year, reaching a high of 7.62% in mid-June due to tightening of the monetary tightening. The consensus is that the RBI is likely to raise the repo rate by up to a percentage point more, which would cause further MTM losses on banks. If yields don't harden, banks will gain because they will be able to write back some of the MTM losses. We have done some kind of sensitivity analysis. If we go by the 7.3% government securities yield yesterday, we can write back Rs 1,900 crore of MTM provision that we have already created, SBI chairman Dinesh Khara said.