TROUBLE BREWS

Mumbai, April 21: Axis Bank today admitted that two of its corporate customers had hauled it to court over losses arising from certain structured derivative transactions.

Axis became the first bank to admit that a problem was brewing with corporate clients over the exotic instruments that were sold earlier in the year which lost value dramatically after the market collapse in January.

The private sector bank — one of the first to come out with its fourth-quarter results today — has made contingent provisions of Rs 71.97 crore, which reflects the mark-to-market loss suffered by the specific customer.

Axis Bank has also provided $5.09 million towards depreciation in the value of a derivative instrument.

Mark-to-market is an accounting process by which the assets of an entity are recorded at their current market value. This value may differ from its purchase price.

As a result of the downturn in global financial markets, many companies have been forced to book losses on these exotic instruments — and are furious with the banks which advised them to make these investments.

Several companies first approached the Reserve Bank of India but failed to win any reprieve.

The situation was complicated after the Institute of Chartered Accountants of India instructed all auditors to book these transactions on a mark-to-market basis, which would dent the profits of companies.

Axis Bank, however, reported a net profit that was ahead of estimates.

Its net profit for the fourth quarter ended March 31, 2008, zoomed 71 per cent to Rs 361.40 crore over Rs 211.89 crore in the same period last year.

Net interest income also rose sharply by 89 per cent to Rs 828.43 crore.

The bank’s balance sheet size grew 49.58 per cent to Rs 1,09,577.85 crore as at end March 2008 from Rs 73,257.22 crore as at end March 2007.