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RBI makes banks investment norms more stringent
September 13, 2023
The Reserve Bank of India (RBI) has revised investment norms for commercial banks, making it more stringent as it created a new category namely fair value through profit and loss (FVTPL).
The held for trading (HFT) will now be a separate investment subcategory within FVTPL.
From April 1, 2024, when these new norms come into effect, banks will classify their entire investment portfolio (except investments in their own subsidiaries, joint ventures and associates) under three categories held to maturity (HTM), available for sale (AFS), and fair value through profit and loss (FVTPL).
“The category of the investment will be decided by the bank before or at the time of acquisition, and this decision shall be properly documented,” the RBI said in a notification on Tuesday.
After transitioning to this framework, banks are not allowed to reclassify investments between categories (viz. HTM, AFS, and FVTPL) without the approval of the boards, as well as from the regulator.
The norms mandated that securities that are classified under the HFT sub-category within FVTPL should be fair valued on a daily basis, whereas other securities in FVTPL will be fair valued at least on a quarterly, if not on a more frequent basis.
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