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Bond trading tumbles in India as banks stare at $3 billion loss

Government banks are staring at a potential mark-to-market loss of $3 billion in the March quarter, three times more than in the period to December, according to a Credit Suisse Group AG report.

business Updated: Mar 09, 2018 13:41 IST
Subhadip Sircar
Subhadip Sircar
Bloomberg
RBI,Reserve Bank of India,Bond Trade
Elevators travel next to electronic boards displaying stock figures at the National Stock Exchange of India Ltd. (NSE) building in Mumbai, India, on Friday, Dec. 16, 2016. (Bloomberg)

Traders in India are having a hard time selling bonds.

That’s because state-run banks, the biggest holders of sovereign debt, are in no mood to buy after a seven-month carnage inflicted losses worth billions of rupees on their books. Such lack of participation has caused the average trading volume on the Reserve Bank of India’s platform to nearly halve to Rs280.4 billion ($4.3 billion) since Jan. 1, from the same period last year.

“The return of state-owned banks is critical, specially for the next fiscal year’s borrowing program to go through,” said Lakshmi Iyer, chief investment officer for debt at Kotak Mahindra Asset Management Co. in Mumbai, which oversees close to the equivalent of $19 billion. “We need demand levers in the market.”

Government banks are staring at a potential mark-to-market loss of Rs200 billion ($3 billion) in the March quarter, three times more than in the period to December, according to a Credit Suisse Group AG report this week.

While market participants and the Credit Suisse analysts stress the need for the RBI to intervene, the central bank already warned banks in January that they can’t keep relying on the regulator to manage their interest-rate risk.

If the RBI’s reluctance to play the role of a saviour is any indication, it looks unlikely that Indian bond traders will see their predicament end soon.

First Published: Mar 09, 2018 13:36 IST