Banks face Rs. 20,000 cr. bond losses: report

Banks face Rs. 20,000 cr. bond losses: report

Context:

• Indian bank are starting at Rs 20,000 crore losses in the bond portfolio in the January-March quarter, which is three times more than the losses incurred in the Oct-Dec quarter.

Highlight from the report:

• As per the Credit Suisse(Swiss multinational financial services holding company, headquartered in Zürich), banks were having huge liquidity after demonetization.
• Banks hold 10% more bonds than what is mandated.
• Banks are required to hold 19.5% of their deposits in government papers.
• Rising bond losses will add to concerns on the adequacy of the recap plan.

RBI intervention:

• As per the report, RBI intervention by either raising  the HTM (held to maturity) threshold or buyback of treasures are needed to help contain the MTM(mark-to market) hit for the bank.

What is held-to maturity security?

• A held-to-maturity security is purchased with the intention of holding the investment to maturity.
• This type of security is reported at amortized cost on a company’s financial statements
•  It is  usually in the form of a debt security with a specific maturity date

What is Mark to market?

• Mark to market is an accounting practice that involves recording the value of an asset to reflect its current market levels.
• At the end of the fiscal year, a company’s annual financial statements must reflect the current market value of its accounts.