The Reserve Bank of India (“RBI”), vide its notification dated August 25, 2021, had consolidated several guidelines/ instructions/ directives issued to the banks on prudential norms for classification, valuation and operation of investment portfolio of commercial banks (“Master Directions”). Subsequently, vide notification dated March 31, 2022, RBI has issued another notification amending certain provisions of the said Master Directions which are applicable to all commercial banks (excluding regional rural banks) from March 31, 2022 onwards (“Amendment”).
With respect to section 9 of the Master directions, investments that are classified as ‘held to maturity’ (category of investment portfolio maintained by the banks with intention to hold securities up to maturity) (“HTM”) shall be carried at the acquisition cost, with the premium over the face value being amortised over the tenor of the instrument. Further, acquisition of the instruments shall be at the fair value of the security at the time of its acquisition. The same shall apply to re-capitalisation bonds received from the government of India towards banks’ recapitalisation requirement and held in the investment portfolio.
Investments in special securities received from the government of India towards bank’s recapitalisation requirement from financial year 2021-22 onwards shall be recognised at fair value/ market value on initial recognition in HTM. The fair value/ market value shall be arrived based on the prices/ yield to maturity of similar tenor central government securities put out by Financial Benchmarks India Private Limited. Any difference between the acquisition cost and fair value arrived as above shall be immediately recognized in the profit and loss account.
Please find a copy of the Master Directions, here and the Amendment, here.
This update has been contributed by Nidhi Arya (Partner) and Gayatri Dabir (Associate).
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