SEC move to boost bank DRs

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New Delhi, Oct 1: The US Securities & Exchange Commission’s decision to suspend mark-to-market accounting for hard-to-sell assets of banks will have a positive rub-off on Indian banks listed abroad, including ICICI Bank, HDFC Bank and State Bank of India.

The SEC guidance was also taken on board by the US accounting regulator—the Financial Accounting Standards Board—on Wednesday. This would free banks and financial entities from setting prices on the assets of banks that have “distress value” now.

Since the guidance from the market regulator came before the close of business in the US stock markets, banks and others can now show a sturdier balance sheet. It would restore leveraging capacity for banks across the world, improve liquidity into the global financial system and reduce overseas borrowing costs for companies in the emerging markets, analysts say.

ICICI Bank, which is listed on the New York Stock Exchange and follows the US GAAP or generally accepted accounting principles, will benefit the most among Indian financial entities, analysts say. “It will give these banks some cooling period. It (the SEC’s decision) will benefit ICICI Bank and HDFC Bank. The former will benefit more as it has a relatively larger exposure in the US market,” says Religare Enterprises Ltd Group CFO Anil Saxena.

The mark-to-market losses on Lehman Brothers are $40 million for ICICI Bank’s UK subsidiary. The total exposure of the subsidiary to the US market is just 18% of its total assets. It has an asset size of $8.7 billion, which in turn is only 8% of the total size of the bank as per its statement issued on Sep 17. For State Bank of India, which is listed on the Luxembourg Stock Exchange and follows the International Financial Reporting Standards prevalent in Europe, the impact is not immediately clear. That is because IFRS is yet to give flexibility to banks on valuation. SBI has $5million exposure in the bonds of Lehman Brothers.

G Ramachandran, head of global research group, ICICI Bank, said although the impact of SEC’s directive can be gauged only over some time, it will improve valuation and capital-adequacy of banks, which would give them better leverage. “Since the MTM losses will not take place now, banks will have the leeway to raise funds from the inter-banks market. The move will also improve capital adequacy,” he told FE.