RBI allows banks to spread provisions against bond losses

By: |
Mumbai | June 16, 2018 1:50 AM

The Reserve Bank of India (RBI) on Friday allowed banks to spread their provisions against bond losses in the June quarter over up to four quarters on account of rising yields and declining prices of bonds.

RBI allows banks to spread provisions against bond losses

The Reserve Bank of India (RBI) on Friday allowed banks to spread their provisions against bond losses in the June quarter over up to four quarters on account of rising yields and declining prices of bonds.

The rising yields resulted in a notional loss to the banks on a mark to market (MTM) basis for which a corresponding provision had to be made. This is an extension of a similar dispensation offered by the central bank in the March quarter.

The yield on the 10-year benchmark government security has risen 56 basis points (bps) between April 1 and June 15.

While extending the dispensation on provisioning, the RBI pointed out that banks have had inadequate time to build the investment fluctuation reserve (IFR) mandated by by it.

The central bank prompted banks that utilise the dispensation to make suitable disclosures in their notes to accounts or quarterly results. They must disclose the provisions made for depreciation of the investment portfolio for the quarter ending June 2018 as well as the balance required to be made in the remaining quarters. All scheduled commercial banks and small finance banks (SFBs) will be allowed to spread their provisions equally over up to four quarters with immediate effect.

Recently, in an interview with FE, Pradeep Khanna, MD and head of trading, HSBC, had said, “Presently, local banks’ appetite to hold bonds on a mark to market basis has reduced since they are already stressed as a result of NPA provisioning.”

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