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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.
