This is likely to translate into a Rs 300-crore writeback benefit for the banking industry with the State Bank of India likely to gain over Rs 100 crore. The securities portfolio of private and foreign banks might be hit marginally as YTM on medium-term and short-term securities have gone up by 4-17 basis points as compared to year-end YTM in 1998.

For the first time, the RBI has fixed YTM for securities beyond 10 years and up to 20 years, signalling that in future the focus of the government borrowing will be to the longer end. Till last year, the RBI indicated only one year-end YTM for all securities of ten years and above. The RBI has pegged the YTM for papers maturity in 20 years and beyond at 12.50 per cent for 1999.

An RBI release saidon Friday that the any net appreciatiion in the value of the securities on account of the method of valuation indicated by the central bank should be ignored while the net depreciatiion should be fully provided for.

"The circular has also advised banks that have adopted a more prudent method of valuation of securities than the one suggested by the Reserve Bank to continue with the practice followed by them," the release said.

The jacking up of the YTM at the shorter end of the maturity spectrum will have an impact on foreign and private banks, known as the "trading banks". The YTM for the two-year paper has gone up 17 basis points to 11 per cent, while for the three-year paper the year end valuatiion has gone up by 6 basis points to 11.17 per cent. The YTM of four-year paper has also gone up by four basis points to 11.32 per cent.

In the longer end, the PSU banks are in a position to write back as year-end YTMs for nine and ten year securities are lower than the previous year's YTM levels. "I do notthink they will be in a position to writeback as much as they did last year," debt analyst at SBI Caps Aasish Aggarwal said.

Last year, propelled by the depreciation writeback due to a 140 basis point cut in the year-end YTM level of the 10-year paper (from 13.65 per cent to 12.15 per cent), the banking industry gained more than Rs 2000 crore with the SBI alone making pre-tax writebacks to the extent of Rs 906 crore in 1997-98.

According to the RBI, banks are required to value taxable non-priority sector PSU bonds at 2 percentage points above YTM, tax-free non-prioriity sector PSU bonds at 1 percentage below YTM, tax-free priority sector PSU bonds at 2 percentage below YTM and taxable priority sector PSU bonds at YTM rates on government papers.

"As regards valuation of other unquoted securities banks should uniiformly follow YTM method for arriving at valuation of unquoted securities," the RBI release said.