SBI makes $10 million provision for possible sub prime losses

Mumbai: The State Bank of India, the country's largest lender, is making a $10 million provision for mark-to-market losses as it expects clients to book losses of up to Rs700 crore ($175 million) due to the subprime-related foreign exchange derivative contracts.

"Due to subprime abroad we will have to provision for an MTM loss of $10 million," chairman OP Bhatt told a conference. "We don't have any other paper on subprime, and we don't see the value of investments going down further," he added.

SBI customers, Bhatt said, could book notional losses on foreign exchange derivatives of Rs600-700 crore.

The SBI chief's revelations come after Axis Bank Ltd, the country's fourth-largest by assets, this week set aside funds for potential losses. Axis set aside Rs71.97 crore as of March for the potential losses, the bank said in a statement yesterday.

Analysts expect Axis's losses to be small compared to other major banks like ICICI Bank and HDFC Bank, who are bigger players in derivatives market.

ICICI Bank, the country's largest private sector lender is scheduled to report earnings on April 26 and HDFC Bank, India's third-largest lender, on April 24.

Several companies, including Rajshree Sugars & Chemicals, Sundaram Multi Pap, Sabare International, Garg Acrylic, NC Sugars, Precot Meridian and Sundaram Brakes, have moved court against banks alleging illegal forex contracts.

The list of banks facing litigation on forex derivatives include ICICI Bank, Axis Bank, Kotak Mahindra Bank, Yes Bank and HDFC Bank.

Some companies are waiting for the market to improve rather than take legal recourse against their banks ahead of settlement or expiry of the contracts.

SBI, however, doesn't face any court cases and it won't set aside funds to cover losses in its earnings for the year ended 31 March, Bhatt said.

SBI, he said, had 130 million customers and none of them had taken any legal action over derivative contracts. He also said SBI's loans are expected to grow 22 per cent in the current financial year that began on 1 April.