Banks in India are set to lobby the Reserve Bank of India (RBI) for considerations to spread mark-to-market losses over several quarters. This came after a sharp drop in June, which saw many banks report larger than expected losses. Note that previously RBI turned down a similar request in June.
This time banks will be requesting the RBI to allow for mark-to-market (MTM) losses to be included under provisions and contingencies after banks must have estimated operating profits. If such a move is granted, banks believe it would provide an opportunity for a better estimate of operating performance. The banks believe such a gesture will ensure that operating profits are not profoundly affected by national losses.
The recent MTM losses have affected some of the top banks in the country, with State Bank of India NSE reporting a 6.7% drop in standalone profit. While the bank’s recent earnings report came in at ₹6,068 crores for June, the bank posted a ₹6,549 crore MTM loss. Meanwhile, the bank’s operating profit shrank to ₹12,753 crores between April to June, a significant change from last year’s operating profit report of ₹18,975 crores.
Other lenders like the Punjab National Bank NSE have also reported steep MTM losses. In June, the bank reported a Rs 1,409 crore MTM loss. Similarly, the rating agency, ICRA NSA, predicts that overall banking sector MTM losses will rise to Rs 10,000 in the long run if the RBI doesn’t grant the current request.
RBI’s intervention in the past
Should the Reserve Bank of India grant banks’ request to spread MTM losses over multiple quarters, it won’t be the first time RBI will give such a request as it also did so in December 2017. The request saw the RBI grant banks an opportunity to spread MTM losses over four quarters.
Currently, some banks have brought the issue up in a meeting with other lenders via the auspices of the India Bank Association. According to a bank executive, they will reach out to the RBI once more after being turned down in June.