RBI revises rules for classification and operation of investment by banks

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

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

Starting from April 1, 2024, the revised rules will be applicable to all commercial banks including the regional rural banks (RRBs), it said.

The changes are aimed at improving financial reporting, improving disclosures, providing a fillip to the corporate bond market by the banks and facilitating the use of derivatives for hedging, as well as strengthening the overall risk management framework of banks, RBI said.

As per the regulation, banks are required to categorize their entire investment portfolio under three categories Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss (FVTPL).

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

These investments should not include investments in their own subsidiaries, joint ventures and associates.

"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.