In a significant relief to the lenders hit by treasury losses and bad loans, the Reserve Bank of India (RBI) has allowed them to spread their mark-to-market losses incurred in the April-June quarter equally over the next four quarters.
“It has been decided to grant banks the option to spread the mark-to-market losses on investments held in Available for Sale (AFS) and Held for Trading (HFT) portfolio for the quarter ending June 30, 2018, equally over a period of four quarters, commencing from the quarter ending June 30, 2018,” the RBI said in its bi-monthly policy statement.
In recent times, facing a double-whammy of treasury and mounting bad-loan losses, many Indian Public Sector Banks (PSBs), where a majority stake (i.e. more than 50 per cent) is held by the Indian government, are reported to have expressed their concerns over bad loans and the spike in bond yields eating into their profits.
It can be mentioned that in January this year, a group of state-owned lenders including State Bank of India (SBI), Central Bank of India (CBI) and Bank of Baroda among others, approached the central bank of the country, seeking exemption from recognising mark-to-market losses on their government bond portfolios in the December quarter.
Mark-to-market losses appear when an asset is priced according to a mark-to-market (MTM) accounting method. Under MTM, an asset’s value is adjusted on a daily basis to reflect its market price.
Henceforth, under the relaxed RBI relaxing provisions, if a lender incurs a loss of Rs 100 crore in the three months ended June, it can set aside Rs 25 crore over each of the next four quarters.