Bond Trading Tumbles in India as Banks Stare at $3 Billion Loss

(Bloomberg) -- Traders in India are having a hard time selling bonds.

That’s because state-run banks, the biggest holders of sovereign debt, are in no mood to buy after a seven-month carnage inflicted losses worth billions of rupees on their books. Such lack of participation has caused the average trading volume on the Reserve Bank of India’s platform to nearly halve to 280.4 billion rupees ($4.3 billion) since Jan. 1, from the same period last year.

“The return of state-owned banks is critical, specially for the next fiscal year’s borrowing program to go through,” said Lakshmi Iyer, chief investment officer for debt at Kotak Mahindra Asset Management Co. in Mumbai, which oversees close to the equivalent of $19 billion. “We need demand levers in the market.”

Government banks are staring at a potential mark-to-market loss of 200 billion rupees ($3 billion) in the March quarter, three times more than in the period to December, according to a Credit Suisse Group AG report this week.

Click here to read how the market collapse drove India’s biggest lender away

While market participants and the Credit Suisse analysts stress the need for the RBI to intervene, the central bank already warned banks in January that they can’t keep relying on the regulator to manage their interest-rate risk.

If the RBI’s reluctance to play the role of a savior is any indication, it looks unlikely that Indian bond traders will see their predicament end soon.

©2018 Bloomberg L.P.