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Banks allowed to spread bond losses in four quarters

FPJ Bureau | Updated on: Wednesday, May 29, 2019, 11:04 PM IST

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Mumbai : The Reserve Bank of India on Monday allowed banks to spread provisions for bond losses in the third and fourth quarters of FY18 over the next four quarters.

The central bank said the provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss was incurred.

“With a view to addressing the systemic impact of sharp increase in the yields on government securities, it has been decided to grant banks the option to spread provisioning for mark-to-market (MTM) losses on investments held in the available-for-sale (AFS) and in the held-for-trading (HFT) for the quarters ended December 2017 and March 2018,” RBI said in a notification.

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The move comes as a breather for banks which have been fighting record bad loans on top of the massive spike in bond yields since the past two quarters. After falling into under 6.4 per cent the benchmark bonds have been trading around 7.5 per cent since last November.

The bad loans in the system has crossed more than 10.5 per cent or over Rs 11 trillion and rating agencies on Monday warned that it will cross 11.5 per cent this year mid-way before improving to settle at 10.5 per cent.

Rating agencies had pegged investment losses at over Rs 15,000 crore in the December quarter alone while the whole year is yet to be ascertained. In FY17, banks had made huge gains to the tune of over Rs 1 trillion.

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The central bank notification said the bank which is utilise the option, will have to make disclosures in their quarterly results.

“Banks have to provide details of provisions for depreciation of the investment portfolio for the third and fourth quarters made during the quarter/year and the balance required to be made in the remaining quarters,” the apex bank notification said.

The apex bank also advised banks to create an investment fluctuation reserves (IFR) from the current year to build up adequate reserves to protect against any increase in yields in future.

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Published on: Tuesday, April 03, 2018, 12:19 AM IST