RBI/2010-11/172
DBOD.FID.FIC.5/01.02.00/2010-11
August 18, 2010
The CEOs of the All-India Term Lending and Refinancing Institutions
(Exim Bank, NABARD, NHB and SIDBI)
Dear Sir
Sale of Investments held under Held to Maturity
(HTM) category
In terms of our
Master Circular No.DBOD.FID.FIC.3/01.02.00/2010-11 dated July
1, 2010 on 'Prudential Norms for Classification, Valuation and Operation of
Investment Portfolio by FIs', securities acquired by FIs with the intention to
hold them up to maturity may be classified under Held to Maturity (HTM)
category. FIs are, however, allowed to shift investments to/from HTM with the
approval of the Board of Directors once a year. Such shifting is normally
allowed at the beginning of the accounting year and no further shifting to/from
HTM is allowed during the remaining part of that accounting year.
- In this connection, it has been observed that many banks are
resorting to sale of securities held under HTM category, that too
frequently, to take advantage of favourable market conditions and to book
profits. It needs to be reiterated that securities under HTM category are
intended to be held till maturity and accordingly are not required to be
marked to market.
- In order to discourage any such practice among FIs and for sake of
uniformity, it has been decided that if the value of sales and transfers of
securities to/from HTM category exceeds 5 per cent of the book value of
investments held in HTM category at the beginning of the year, FIs should
disclose the market value of the investments held in the HTM category and
indicate the excess of book value over market value for which provision is
not made. This disclosure is required to be made in 'Notes to Accounts' in
FIs' audited Annual Financial Statements.
- These guidelines come into force with immediate effect.
Yours faithfully
(Vinay Baijal)
Chief General Manager