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The Reserve Bank of India’s move to restrict the option of spreading provisioning for mark-to-market losses on government securities to smaller urban co-operative banks (UCBs) has stumped the larger players in this segment.
The central bank had initially given this option of spreading provisioning for mark-to-market losses (MTM) that arose due to the systemic impact of sharp increase in the yields on Government Securities only to scheduled commercial banks and small finance banks. But when co-operative banks raised questions about being denied this benefit, the RBI extended it to UCBs, but only to those with deposits of less than ₹100 crore.
What this means is that large UCBs (with deposits running into thousands of crores of rupees) such as Saraswat Co-operative Bank (deposits: ₹33,737 crore as of March-end 2017), Cosmos Co-operative Bank (₹15,649 crore), SVC Co-operative Bank (₹14,518 crore), Abhyudaya Co-operative Bank (₹11,119 crore), Bharat Co-operative Bank (₹10,385 crore), TJSB Sahakari Bank (₹9,351 crore), Punjab & Maharashtra Co-operative Bank (₹9,012 crore) and Rajkot Nagarik Sahakari Bank (₹4,343 crore) will not be able to get the benefit. If allowed, it would have helped improve their bottomline
As per the RBI data, about 39 per cent of the 1,562 UCBs in the country had deposits of ₹100 crore and above as on March-end 2017. These banks accounted for about 91 per cent of the total deposits of ₹4,43,470 crore with UCBs.
Uday Joshi, National General Secretary, Sahakar Bharati, which is an all-India organisation for promoting the co-operative movement in the country, underscored that UCBs too have substantial investments in government securities and have suffered losses like commercial banks. Hence, the relief to spread provisioning for MTM losses should be available to all UCBs, irrespective of their deposit size.
MTM loss arises when the fair value of a government security is less than the cost of its acquisition at the end of a quarter. Banks are required to make investment depreciation provision whenever such a loss occurs.
The RBI has allowed banks the option to spread provisioning for MTM losses on investments held in AFS (available for sale) and HFT (held for trading) categories only for the quarters ended December 31, 2017, March 31, 2018, and June 30, 2018. The provisioning for each of these quarters can be spread equally over up to four quarters, commencing with the quarter in which the loss was incurred.
The securities in the AFS category are those where the intention of the bank is neither to trade nor to hold till maturity. The securities in the HFT category are those where the intention is to trade by taking advantage of short-term price/ interest rate movements.
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