Marked by Market ; Exposure to Overseas Credit Derivatives Takes a Toll On Indian Banks.

Summary

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It's clearly India's Rs 1,28,00,000-crore hedging gamble in the global market. Markto-market (MTM) losses, which are based on the value of positions at current market prices, have begun haunting India Inc., and particularly the banking sector, after the subprime crisis erupted in the world's largest economy late last year. The exposure of Indian corporate in derivatives, which are used globally as a hedge against currency risk, interest-rate risk and commodity risk, is estimated to be Rs 128 trillion.

That means there's that much of money lying in the books of commercial banks, a large part of it in the foreign banks operating in India. One estimate is that the actual losses could be anywhere between $5 billion (Rs 20,000 crore) and $10 billion, which is a little less than half a percentage point of the total derivatives exposure. The story so far: Last September, software major Hexaware announces a provision of $20-25 million for MTM losses, courtesy of a currency options and swaps deal.

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Marked by Market ; Exposure to Overseas Credit Derivatives Takes a Toll On Indian Banks.

Four months later, ICICI Bank suffers a similar fate, but in altogether different instruments credit derivatives and fixed- income securities; the bank notches up MTM losses of $264.3 milli...

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