Fimmda lowers December-end price valuation of government bonds
Mumbai: An association of bond traders has lowered the reference December quarter price valuation for some government bonds, a move that may lead to further losses on the investment portfolio of some banks, according to traders.
It has also revised upwards the price valuation of a few securities.
“As per RBI (Reserve Bank of India) instruction valuation prices (securities under statutory liquidity ratio (SLR) & non-SLR) for month/quarter ending 29th December 2017 revised… All RBI regulated entities are advised to comply with the same,” according to a ticker on the website of the Fixed Income Money Market And Derivatives Association Of India (Fimmda), a voluntary market body for bond, money and derivatives markets.
This means, in case of a downward revision, valuation prices are lowered and yields are marked higher than the actual closing level on 29 December, the last trading session of the quarter. Bond prices and yields move in opposite directions.
The reason for the revision in valuation was not immediately known. D.V.S.S.V. Prasad, chief executive of Fimmda, did not respond to calls seeking comment.
According to market participants, with this revision, yields on some securities are higher by as much as 15 basis points. The revised values will be reference point for banks to revalue their bond portfolio. A basis point is one-hundredth of a percentage point.
Banks have to revalue their bond portfolio at the end of every quarter. In case the value of the securities is lower than the market rate, they are mandated to keep aside funds as mark-to-market provisioning.
“This will further increase the mark-to-market provisioning of most banks, but the impact would vary depending how much and which security each lender holds,” an official of large state-owned bank said on condition of anonymity.
In the December-quarter, the yield on 10-year government securities rose by around 66 basis points mainly because of worries that the government may not meet its fiscal deficit target.
In a note dated 2 January, rating agency Icra had said that the mark-to-market loss for the entire banking sector is estimated at Rs15,500 crore for the December quarter.