Banks seek more time for IFCI provisioning

Fourteen banks having taken a hit of around Rs 930 crore as depreciation for exposure to IFCI have conveyed to the Reserve Bank of India (RBI) that accounting for the hit in 2007-08 would be difficult.

The banks have urged the RBI to permit provisioning for depreciation in their investments in IFCI bonds over three-four years.

This representation was made to the central bank when a team of bankers lead by M B N Rao, chairman and managing director of Canara Bank, and also the chairman of Indian Banks' Association (IBA), met RBI Deputy Governor Rakesh Mohan yesterday as part of the pre-monetary policy review consultation process.

The fourteen public sector banks will take a combined hit of Rs 930 crore on their Rs 3,057 crore investment in IFCI as the RBI has asked them to transfer their exposure from the held-to-maturity (HTM) category to available-for-sale (AFS) category by March 31, 2008. State Bank of India (SBI), Canara Bank, Oriental Bank of Commerce (OBC) and UCO Bank will each take a hit of at least Rs 100 crore.

Other banks having to make provision for the depreciation are Andhra Bank, Indian Bank, Punjab National Bank, Bank of Maharashtra, Dena Bank, Bank of India, Corporation Bank, Vijaya Bank, Punjab & Sindh Bank and Union Bank of India.

In May, the central bank had asked banks with exposure to IFCI to transfer all their investments to the available-for-sale (AFS) category from the held-to-maturity (HTM) category by the end of June 2007.

However, following a representation from the banks, the RBI had allowed the banks to spread the additional hit they would take over four quarters on a pro rata basis according to the market value at the end of each quarter, so that the full provisions were made by March 31, 2008.

However, bankers said making provisions for the exposure would affect their profitability and wanted the RBI to reconsider its decision.

Of the Rs 3,057 crore exposure, the banks have investments of Rs 1,071 crore in IFCI's SLR bonds and Rs 600 crore in non-SLR bonds. The remaining is in preference shares and other instruments issued by the term lending institution.

Banks' investments in companies have to be mark-to-market, according to the RBI guidelines. Their investments in IFCI bonds and preference shares do not qualify under the held-to-maturity category.

When the IFCI debt restructuring exercise was undertaken in 2002-03, the central bank had allowed the banks to hold their investments in IFCI in the HTM category.