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India’s revised bank investment norms seen boosting debt appetite
September 14, 2023
The Indian central bank’s move to remove the cap on how much a bank can invest in bonds they intend to hold to maturity will boost lenders’ appetite for government securities and benefit their bottom lines, bankers and analysts said on Wednesday.
The Reserve Bank of India (RBI) did away with the ceiling on the held-to-maturity (HTM) category of investments on Tuesday, as part of a broader rejig of classification and valuation norms. The new norms come to effect from April 1, 2024.
Typically, government bonds are the most common form of investment in HTM. Currently, the investment limit on HTM is 19.5% of a bank’s net deposits, with some dispensation on bonds purchased between Sept. 1, 2020 and March 31, 2023.
“This incentivises nationalised banks on more investing bias towards 3-7 year government securities and state development loans in the current cycle,” said Madhavi Arora, lead economist at Emkay Global Financial Services.
After a spate of rate hikes, the RBI is expected to keep rates on hold at least until the middle of 2024 before it starts lowering them.
At that point, banks with sizeable investments in the HTM category stand to benefit.
As per a Jefferies report, HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank and State Bank of India each had more than 60% of their total investments classified as HTM in 2022/23.
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