At a time when a large number of companies and banks are reporting mark-to-market losses on derivatives, mortgage lender Housing Development Finance Corporation on Wednesday said it has made an MTM gain of Rs 293.59 crore on its portfolio.
HDFC has an exposure of around Rs 2,600 crore ($650 million) to cross-currency swaps and another Rs 13,000 crore to interest rate swaps. It made an MTM gain on this portfolio.
In addition, it has a forex loan exposure of around $1 billion, where there are separate MTM gains that have not been booked.
HDFC Managing Director Keki Mistry said: "We entered into simple hedging transactions and not exotic derivative transactions. The MTM gain cannot be recognised, as these transactions have not yet matured. The gains or the losses will be realised only after these transactions mature and the loans are paid back."
This is why the housing finance company has not recognised the MTM gain in its profit and loss account.
Last month, Morgan Stanley had said that HDFC has significant yen-based liabilities, of which one yen-denominated loan of $100 million was due to mature. The lender had frozen an MTM loss of Rs 16 crore on this liability and took this loss in the period ending December 2007, taking away any impact on fourth quarter earnings.
"There is so much confusion in the market that HDFC decided to disclose this number. But all this gain or loss is notional. Currency values have changed significantly in the last month and many companies would have seen improved portfolios," said a source familar with the developments.
Sources said based on the information received from some companies, the ED, which has the mandate to administer the Foreign Exchange Management Act, will decide if the provisions of the law have been violated or not.
Banking sources, however, said that they have not received any such notices so far.
