Most of banks' losses have been taken care of by RBI: OBC

In an interview to CNBC-TV18, SL Bansal, CMD of Oriental Bank of Commerce said that the Reserve Bank of India's measures on Tuesday to help the spiraling rupee was a step in the right direction.

The RBI issued another set of steps aiming at arresting dip in long term bond yields and shielding banks from incurring financial losses due to declining bond prices. He explained that before July 15 most of the banks were sitting on reasonable amount of profits, then all of a sudden the yields started moving northwards. And now the banks were sitting on the huge losses. However, he adds, most of the losses have been taken care of by RBI's decision and banks are in a reasonable position. Below is the verbatim transcript of his interview to CNBC-TV18 Q: The big question really is since you have quite a large bond portfolio what happens to Q2, with the kind of yield that, surge that we have seen and with the Reserve Bank of India (RBI) relief yesterday, should the markets now not fear about potential mark-to-market losses, in your cases hypothetically what could be the situation when you declare the Q2 numbers? A: The market is in a very volatile situation, as on date, three different situations, before July 15, July 15 till yesterday and today. Going forward what is going to happen in another 40 days is very difficult to predict and that what is going to be the position as on September 30. However, let us talk today, as on date I think most of the positions have been taken care of by RBI yesterday announcements. We will be able to hold onto our position and I think there will not be any mark-to-mark losses. Q: There will be no loss that you will have to amortise over the remaining three quarters, everything will get transferred into the held-to-maturity (HTM) category and therefore there won’t be loss on that, but about in the remaining quarters? A: That is what I am saying. Before July 15 most of the banks were sitting on reasonable amount of profits. Then all of a sudden the yields starts moving northwards and the banks were sitting on the huge losses. So, we made a representation to the RBI, which they have very kindly accepted. Now most of the securities can be accommodated in HTM category and whatever remaining securities are there in Available for Sale (AFS) category. Some losses will be there which can be amortised in the next three quarters. So it is a normal business, is a normal business risk. Going forward what is going to happen it is to be seen. Q: So that is what, we were trying to get some figures. At current levels of bond yield what will be the loss that could need to be amortised over the remaining quarters? A: As on date it is very difficult to calculate on day-to-day basis the losses or profit. It is mark-to-mark on security basis. There are some securities where we are earning X amount, in other securities we are earning something else. So, it is very difficult to calculate mark-to-mark losses on daily basis. We are doing some other banking business also. We are not calculating mark-to-mark losses. But broadly I am explaining to you as on date most of the losses have been taken care of by yesterday’s decision and banks are in a reasonable position now. _PAGEBREAK_ Q: Just wanted to check. What is your current, current account and saving account (CASA) and going forward what would it stabilise at? A: Our current CASA is about 24 percent and we expect that it will remain in the same range. In today’s environment people are not in a position to save much money and most of the banks are offering the same facility. So, even if the CASA is available that most of the deposit territory behaviour we are providing 8-9 percent even for short-term deposits. The CASA practically in the saving bank and current account on standalone basis is available in today’s environment. Q: While the banking community has been given some relief because of the RBI measures of not providing the mark-to-market (MTM) losses, but in general for the corporate industries these very high rates of nine percent on the 10 year or the very high rates that we have seen since July 15 would be hurting them, any incremental stress in asset quality? Do you expect on account of the high rates that we have seen close to a month now? A: As far as lending rates are concerned they continue to remain at the same level. The only thing is in some cases where AAA rated and AA+ rated company where we were lending close to base rate we have started charging some premium. Now these rates have moved up, for other assets the rates remaining the same. However, the asset quality concern as it is remaining in the system because the economy is not doing well. So, long as the economy remains in the current state of affairs then pressure on the asset quality will remain with the banking industry. Q: You recently realigned your short-term deposit rates to the market, you have a very lower, and so you raised that up. I just want to understand in terms of the slightly longer term tenures have the deposit rates peaked over there because over there we haven’t seen any kind of move from any bank? A: Most of the banks are offering nine percent deposit rate on one year and above bucket and 70 percent of the deposit comes in this bucket. Remaining 24 percent is in CASA and remaining 6-7 percent is in the short-term bucket. So, I think one year deposit rate is stabilise at around nine percent. If the market conditions remain the same as it is then I think nine percent is quite attractive rate when the inflation rate is close to five percent. So, I don’t see any reason why to improve the deposit rates and then in turn upward movement in the lending rate will be there. This will be suicidal for the market and for the industry also.