Reserve Bank of India allows banks to spread bond losses

The Reserve Bank of India (RBI) on Monday allowed banks to spread their mark-to-market (MTM) losses, incurred due to adverse yield movement in December and March quarter over four quarters. 

To absorb such losses in future, the central bank instructed banks to create an Investment Fluctuation Reserve (IFR) from the start of the current fiscal. 

Bond yields had moved 70 basis points up in the December quarter, but recovered about 20 basis points in the March quarter after lower-than expected first half borrowing plan. 

The December quarter movement cost the banking sector MTM losses of at least Rs 150 billion.