New investment norms to hit bonds: Nayak

The Reserve Bank of India's (RBI) recent guidelines on classifying banks investments may have unintended consequence of making the bond market illiquid impeding price discovery, UTI Bank chairman and managing director, P J Nayak said on Thursday.

Early September, RBI allowed banks to shift a part of their gilt investments to the held-to-maturity category to protect investments from adverse impact of rising yields.

UTI Bank transferred nearly 40 billion rupees worth of securities to the held-to-maturity category, booking a one time accounting loss of Rs 1.14 billion. The incentive to trade will diminish as more banks shift gilt investments to the held-to-maturity category, he said.

"All banks are therefore going to be on the same side of the market," Nayak said at an analyst meet after the private sector bank detailed July-September results. "I cannot see how this market will continue to remain liquid," he said.