The Write Back Conundrum

Investment portfolios of banks can be broadly divided into the permanent (non-traded) and the current (traded) category. According to RBI stipulations, it is the current category ( pegged by the central bank at 50 per cent of a banks total portfolio in 1996-97 and raised to 60 per cent for 1997-98) that has to be marked to market. The RBI directives make it mandatory for all nationalised banks to carry out the mark to market exercise every six months.

However, foreign banks in India have, for the past four years, been marking their entire portfolio to market (i.e., they do not have a permanent category) as frequently as on a daily basis. Last year, the new private sector banks (NPSBs) were also asked by the RBI to mark 100 per cent of their portfolio to the market. The foreign banks and NPSBs are not saddled with the burden of untradeable, low coupon securities as is the case with public sector banks. It is, therefore, easier for them to mark 100 per cent of their portfolio to the market