By Nupur Acharya and Vivin Mathew, CNBC-TV18

Bank stocks were butchered in yesterday’s trade with the Bankex losing over 8%. The biggest worry is the looming mark-to-market losses that will hit their earnings. The banking sector losses could be as high as Rs 9000 crore rupees this year.

Bond prices have tumbled by about 10% in the past quarter and the debris will show up on the balance sheets of banks as mark-to-market losses. Crisil research estimates that the mark-to-market losses for the banking industry could be Rs 9000 crore rupees in the current financial year.

MV Nair, Chairman, Union Bank of India, “Mark to market losses will happen. Even in our bank. To that extent, profitability this year will not be like last years.”

Mark to market losses will happen. Even in our bank. To that extent, profitability this year will not be like last years.

Mark-To-Market Hit

Impact In Q1

Bank                             Loss (Rs cr)

SBI                                  964

BoB                                 230

Canara Bank                    380

Union Bank                      400

ICICI Bank                        350

BoI                                   108

Source: Brokerage reports

Analysts at various brokerages have estimated bank wise hit as follows. For SBI the estimated losses could be over Rs 900 crore, Bank of Baroda – Rs 230 crore, Canara Bank Rs 380 crore, Union Bank of India Rs 400 crore and ICICI Bank could post MTM losses at Rs 350 crore. However, Bank of India could be less affected with losses of about Rs 100 crore.

Mark-To-Market Hit

10-Yr Bond (8.24%, 2018)

Date                         Price (Rs)

Apr 22                      100.53

June 30                      97

July 14                       92.79

Here's how the mark-to-market losses get counted. The 10-year 8.24 per cent benchmark 2018 paper, which was trading at a price of Rs 100 and 53 paise in April is now trading at Rs 92 and 20 paise, resulting in a mark-to-market loss of over Rs 10 for buyers. As of June 30, the bond had closed at Rs 97, which is a loss of Rs 3 and 50 paise.

Mark-To-Market Hit

G-Sec Portfolio Classification

- Available for Sale (AFS)

- Held to Maturity (HTM)

Banks classify their government bond investments into two categories - available for sale and held to maturity.

Mark-To-Market Hit

G-Sec Portfolio Classification

- Available for Sale (AFS) only are marked to market

Only the available for sale bonds have be to marked to market. Banks get one chance in a year to move their bonds to the held to maturity category.

In their recent meeting with the Reserve B, bankers had pleaded for another chance to convert their AFS (Available for sale) folio to HTM (Hold to Maturity). However, the apex bank has refused to consider it. Besides government bonds, banks have to mark-to-market their investments in corporate bonds and foreign derivatives like credit default swaps. These instruments have also fallen in the past two months, and were beaten down further after Fitch lowered its outlook on India's rating to negative from stable.