Top Indian corporates like Tata Motors and Reliance and banks like ICICI Bank, State Bank of India, YES Bank and Bank of Baroda are likely to get hit in their balance-sheets as exposure in credit derivative instruments has come under pressure in the international markets. An industry source said that the spread for those banks and companies having an exposure to credit derivatives in the US, have gone up by 200-1,600 basis points in the last eight to nine months.
Chiragra Chakrabarty, principle consultant, PricewaterhouseCoopers explained that the companies or rather banks that have invested in credit derivative instruments, maturing in April will face huge marked-to-market (MTM) losses.
?Today, the global scenario looks cloudy. Hence, those banks having an exposure to credit derivative instruments with shorter maturities abroad are likely to suffer higher MTM losses than those who invested in higher maturities, say a year or more,? Chakrabarty said.
?With the ongoing turmoil in the global markets, credit derivative spreads have widened for Indian corporates who have bought instruments in the international markets,? said Rajesh Mokashi, executive director of CARE Ratings.
The spread in these instruments are widening due to the illiquidity and the drying up of credit markets, globally.
Chakrabarty said only if the turmoil in the international market sees some improvement, the longer maturities will give out lesser MTM losses to banks.
Jamal Mecklai, CEO of Mecklai Financial and Commercial Services said that it would take sometime for the global scenario to stabilise.
?It all depends on when the global crises stabilise. A lot of Indian companies and banks are using these credit derivative instruments for hedging purposes. As global crisis have worsened, credit spreads have gone up,? said Mecklai.