The state-run banks, which have gone for small provisioning on account of losses in overseas derivative instruments have become cautious in further seeking any exposure in such markets. However the public sector banks attribute their losses as notional and have put up proper strategies to avoid investment in complex derivative instruments.
According to a credit rating analyst, ?Only those Indian banks which have got foreign operations have been affected due to the ongoing turmoil in the international financial markets. While financing Indian companies they have also taken some credit default swap exposures.? However bond spreads of corporates have widened and the prices of bonds have come down. Accordingly, the value of credit derivative exposure on the balance sheet has fallen with the widening of spreads, said the analyst on condition of anonymity.
A senior official of the SBI told FE, ?The bank was having a total exposure valued at $ 22.5 million in the form of collateralized debt obligations (CDO).? In the case of another state lender, Bank of India (BoI), the credit exposure was in the form of foreign currency convertible bonds. A bank official of the bank said, ?Though the exposure of my bank to the credit derivative was to the extent of $ 400 million, the provisioning has been made for the sum of $ 1 million only.?
”Any security you buy is mark-to-market, that too on quarterly basis. But we are going slow on the front now. Credit risk is always there whenever you go for credit derivatives. But in our case, there is no complex derivative,” he said.
On the stringent scrutiny for buying these products he said, ”We ensure that our exposure was not more 5 years. Secondly, we see the things like maturity provisioning, good balance sheet of the borrower. Hence our loss was only notional rather than being actual in nature,”said the official.
