RBI allows banks to spread provisions on bond losses

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RBI allows banks to spread provisions on bond losses

The Reserve Bank of India (RBI) has made an announcement. RBI allows banks to spread provisions on bond losses in the June quarter.

The provisions is 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 this, 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.

The central bank prompted banks that utilize the dispensation to make suitable disclosures in their notes to accounts or quarterly results.

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.

Conclusion

RBI allows banks to spread provisions on bond losses in the June quarter.

A Recent interview, MD and head of trading, HSBC, Pradeep Khanna, 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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