Mumbai (Reuters) – The Reserve Bank of India has revised its guidelines on how banks need to categorise their investments in a bid to align them with global standards, it said in a release on Tuesday.
Banks will have to classify investments into three categories – available for sale (AFS), held to maturity (HTM) and a new category called ‘fair value through profit and loss’, or FVTPL.
The existing held-for-trading (HFT) category will become a sub-category of FVTPL, the RBI said.
“The revised framework updates the regulatory guidelines with global standards and best practices while introducing a symmetric treatment of fair value gains and losses, a clearly identifiable trading book under held for trading (HFT),” the RBI said.
The new norms also do away with the 90-day ceiling on holding period under HFT, while removing ceilings on the held-to-maturity category of banks’ investment portfolio. The revised guidelines will be effective from April 1, 2024.
Previously, the investments under HFT were required to be sold within 90 days of acquiring them.
The valuation gains and losses across all performing investments held under AFS shall be aggregated and directly credited or debited to a reserve named ‘AFS reserve’ without routing through the profit & loss account of banks, the revised norms state.
Securities held in the FVTPL category shall be fair-valued and the net gain or loss stemming from the exercise shall be directly credited or debited to the profit and loss account, it added.
The HFT sub-category shall be fair-valued on a daily basis, while the rest of the investments under FVTPL shall be fair-valued at least on a quarterly basis, if not more frequently, the guidelines showed.
The RBI has also barred instruments with loss-absorbing features such as those qualifying for additional Tier 1 or Tier 2 capital regulations, equity or preference shares from being held under the AFS or HTM categories.
Banks would thus have to hold these investments on their FVTPL books, which automatically require more regular accounting.
The central bank also said lenders shall evaluate investments in subsidiaries, associates or joint ventures for impairment at least on a quarterly basis.
