RBI tweaks norms for classification and valuation of investment portfolios of commercial banks

Reserve Bank of India

The Reserve Bank of India (RBI) on September 12 said it has revised current norms for the classification, valuation, and operation of investment portfolios of commercial banks based on the feedback it received from a discussion paper.

The revised directions include principle-based classification of investment portfolio, tightening of regulations around transfers to/from held to maturity (HTM) category and sales out of HTM, inclusion of non-SLR securities in HTM subject to fulfilment of certain conditions and symmetric recognition of gains and losses, the RBI said in a press release.

The central bank on January 14, 2022, had issued a discussion paper for revision in norms.

The revised directions shall apply to all commercial banks (excluding Regional Rural Banks) from April 1, 2024, the RBI said.

These Directions are expected to enhance the quality of banks' financial reporting, improve disclosures, provide a fillip to the corporate bond market, facilitate the use of derivatives for hedging, and strengthen the overall risk management framework of banks, RBI said.

According to the norm, banks have to classify their entire investment portfolio under three categories Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss (FVTPL).

These investment should except investments in their own subsidiaries, joint ventures and associates.

Further, Held for Trading (HFT) shall be a separate investment subcategory within FVTPL.

"The category of the investment shall be decided by the bank before or at the time of acquisition and this decision shall be properly documented," RBI said in revised directions.