Derivative blow: Axis makes Rs 72 cr provisions

Axis Bank today said it has made provisions of Rs 71.97 crore during the fourth quarter of 2007-08 for six foreign exchange derivatives transactions that have been repudiated by two of its customers.

While the bank has 188 derivatives transactions with an aggregate mark-to-market (MTM) loss of Rs 673.55 crore at the end of March 2008, there are six transactions where companies are not unwilling to honour the contract. Of the 188 deals, 113 are outstanding transactions dealing in foreign exchange derivatives where the aggregate MTM loss is Rs 547.72 crore.

While a host of banks, a majority of which are new generation private players, have sold derivatives products, Axis Bank is the first to disclose the details of such transactions, some of which involved cross-currency options and swaps.

The private sector bank did not disclose the identity of the two companies that have gone to court, but it is widely known that these are Rajshree Sugars & Chemicals and Nahar Industries.

The bank pointed out that the outstanding contracts have not turned non-performing assets and involve MTM losses. Reserve Bank of India guidelines require banks to treat assets as NPAs 90 days after default.