Indian banks have formally sought Reserve Bank of India's approval to spread mark-to-market losses in their investment portfolios across the remaining three quarters, citing sharp market volatility triggered by the ongoing West Asia crisis. According to reports from The Economic Times, a bank executive aware of the developments confirmed that the industry has also apprised the government of the issue, with some banks raising concerns individually with the RBI. A formal representation through an industry association is currently being discussed.
Ten-year government bond yields touched 7.13% early in April during the peak of the West Asia crisis and have since softened to 6.76% after the market viewed recent policy as dovish. As reported by The Economic Times, bond prices and yields have an inverse relationship, meaning when yields rise, bond prices fall, resulting in mark-to-market losses for banks. This sharp market volatility has significantly impacted banks' treasury income and investment portfolio performance.
The market volatility has severely affected major banks' treasury operations in the first quarter. According to The Economic Times, ICICI Bank reported an 87% drop in treasury gain to ₹151 crore, while HDFC Bank's net trading and MTM income fell 96% to ₹400 crore. These substantial declines highlight the significant impact of rising government bond yields on banks' investment portfolios during this period of market stress.
During the Covid-19 pandemic in 2020-21, the RBI had relaxed held-to-maturity limits for banks, allowing greater flexibility in managing their government securities portfolios. However, as reported by The Economic Times, in April, the RBI rejected a similar proposal to spread losses across four quarters, stating that annual results would not truly reflect banks' performance for that year. The RBI did not respond to requests for comments regarding the current proposal.
The Indian rupee ended the day with minimal fluctuations, influenced primarily by oil market dynamics and moves from the central bank. State-owned banks reportedly intervened by supplying dollars on behalf of the Reserve Bank of India, helping to buffer the currency against rising oil costs and global tensions. Traders are taking a measured approach, with a noted resistance threshold at 96. The stability of the Indian rupee was evident on Monday, thanks to the proactive measures taken by the central bank, with the RBI effectively maintaining the rupee above 95.50 since July.
