Banks ask RBI to spread provisions toward MTM losses

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Banks ask RBI to spread provisions toward MTM losses

Banks will ask RBI to allow them to spread provisions toward mark-to-market MTM losses over several quarters after a sharp hit in the 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. Alternatively, banks may 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 lenderon Saturday reported a 6.7% drop in the 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 hampered by MTM losses. 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. In the June quarter, banks value their bond portfolio at market price, which causes a loss of 1,409 crore MTM. The total banking sector MTM 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 gone from 6.9% at the beginning of the current fiscal year to about 7.35% now, hitting a high of 7.62% in mid-June due to 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 as they can write back some of the MTM losses. We have done some kind of sensitivity analysis. If we go by the government's securities yield of 7.3%, we can write back Rs 1,900 crore of MTM provision, which we have already created, SBI chairman Dinesh Khara said.