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“The finance ministry has requested banks to submit information about their held-to-maturity (HTM) portfolios and mark-to-market (MTM) losses in buying and selling books to establish any potential stress,” one senior banker mentioned on situation of anonymity.
The info assortment course of has been occurring for the previous couple of days and is extra of a precautionary train as a result of the federal government “doesn’t need to be caught off-guard” if the disaster spirals additional, the banker added.
It was not instantly clear when the final verify was executed. Nonetheless, the federal government or the Reserve Financial institution of India sometimes asks for such information throughout bouts of volatility.
The bankers didn’t need to be named as they aren’t authorised to talk to the media. The Ministry of Finance didn’t reply to a Reuters e mail looking for remark.
HTM investments are securities that banks buy and intend to carry till they mature. Sometimes, authorities bonds are the most typical type of such investments.
These HTM investments account for 60% of banks’ funding books, of which authorities securities type round 95%, based on a Macquarie report. Following the collapse of some U.S. regional banks, there have been considerations about lenders globally having to discipline attainable losses of their HTM portfolio.
Indian bankers mentioned they at the moment don’t foresee any massive MTM losses as a result of they’ve robust capital ranges and the rise in authorities bond yields has been gradual.
India’s 10-year benchmark bond yield has risen 50 foundation factors (bps) to this point this monetary yr, throughout which the Reserve Financial institution of India has raised the coverage repo price by 250 bps. Most market individuals count on the RBI to boost charges by 25 bps, to six.75%, at its subsequent coverage assembly in April.
“Although there may be nothing to fret about banks’ bond holdings, the federal government is prone to talk about the identical after asking for information from banks,” mentioned one other senior treasury official at a state-run financial institution.
“It’s simply to verify the soundness of state-run banks.”
Most analysts imagine that Indian banks should not dealing with the identical stage of stress on their bond portfolios as U.S. banks.
“Until there’s a run on banks and so they face monumental liquidity points, the necessity to promote HTM guide is low,” Suresh Ganapathy, head of Macquarie Capital’s monetary analysis, mentioned in a word.
And since Indian banks’ HTM guide includes high-quality authorities securities, the MTM losses are unlikely to be to the identical extent as for world banks, Ganapathy added.
Whereas Indian banks have cleaned up their stability sheets up to now few years, Capital Economics mentioned some vulnerabilities lurk.
A excessive ratio of non-performing loans and low regulatory capital are causes for concern, Shilan Shah, deputy chief rising markets economist at Capital Economics, wrote in a word this week.
“The loss absorption capability – the mortgage loss price wanted to scale back the tier 1 capital ratio beneath the regulatory minimal of 4.5% – is decrease in India than in different EMs.”
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