RBI gives banks some breather on MTM losses front, announces liquidity infusion - Angel Broking

Recent series of RBI measures to tighten domestic liquidity so as to check exchange rate volatility has led to significant surge in interest rates across the yield curve. Since July 15, 2013 (when first such measures were announced) to till date, long term yields has inched up considerably. Indian Banks, having realized significant treasury gains in 1QFY2014, now stare at significant mark-to-market (MTM) losses during 2QFY2014.

As these MTM losses can be expected to be largely recouped going forward, the RBI has decided to allow banks to transfer SLR securities to HTM category from available for sale (AFS) / held for trading (HFT) categories up to the limit of 24.5 per cent as a one-time measure. Such transfer of securities from AFS/HFT category to HTM category is to be made at the lower of the book value or market value (calculated as of July 15, 2013). The move is positive for PSU banks like Canara Bank, PNB, BOB, Bank of India, Corporation Bank and many others.

In addition, RBI has also allowed the banks to spread over the MTM losses on the remaining AFS/HFT book over the next three quarters equally. We believe these measures are only sentimentally positive for the banks, other basic fundamental negatives remains largely unchanged except for the RBI intention to not let long term yields go too high.

The RBI has also indicated that it will conduct open market purchase operations (OMOs) of long dated Government of India Securities of Rs.8,000 crore on August 23, 2013.

Source : Equity Bulls

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