On Tuesday, September 12, the Reserve Bank of India (RBI) issued revised norms for the classification, valuation, and operation of investment portfolios of commercial banks. The revised norms will be applicable from April 1, 2024, to all commercial banks, excluding regional rural banks. 

RBI revised its guidelines based on the feedback it received from the January 14, 2022, discussion paper to align them with global standards. These revisions and 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 banks’ overall risk management framework.

According to the RBI statement, the revised directions will 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 (statutory liquidity ratio) securities in HTM subject to fulfilment of certain conditions and symmetric recognition of gains and losses.

Per the revised norms, banks will 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). RBI said that the bank should decide the investment category before or at the time of acquisition and properly document this decision.

RBI introduced a new investment category, Fair Value Through Profit and Loss (FVTPL) account, and Held for Trading (HFT) shall be a separate investment subcategory within FVTPL. RBI also removed the 90-day ceiling on the holding period of securities under the Held For Trading (HFT) categories.