RBI proposes new rules for classification, assessment of banks’ investment portfolio

New Delhi: The Reserve Bank of India (RBI), on Friday (January 15), proposed new norms for the classification and valuation of the investment portfolio of banks, with a view to align them with the global prudential framework and accounting standards.

According to the proposed norms, the investment portfolio of banks will be divided into three categories: held-to-maturity (HTM), available for sale (AFS), and fair value through profit and loss account (FVTPL).

Within FVTPL, held-for-trading (HFT) shall be a sub-category aligned with the specifications of ‘Trading Book’ as per the Basel-III framework.

The new bank portfolio classification norms will come into effect from April 1, 2023, the RBI paper said, while inviting comments on a discussion paper in this regard from stakeholders by February 15.

The new norms propose to bridge the gap between the existing guidelines and global standards and practices with regards to classification, valuation and operations of the investment portfolio of commercial banks.

The extant instructions pertaining to the prudential norms on the classification and valuation of the investment portfolio are largely based on the Report of Informal Group on Valuation of Banks’ Investment Portfolio (Convenor: T C Nair), which was submitted in 1999.

The recommendations of this informal group culminated in the issue of prudential guidelines on the investment portfolio in October 2002, which forms the basis of our current norms.

There have been significant developments in the global prudential framework, accounting standards as well as in the financial markets-both domestic and global in the past two decades.

While the RBI has been tweaking the guidelines in response to situations as they emerge, a comprehensive review has not been undertaken so far, resulting in a wide gap between the country’s norms and the global standards and practices, the central bank said.

It is against this backdrop that a discussion paper, on ‘Review of Prudential Norms for Classification, Valuation and Operations of Investment Portfolio of Commercial Banks’, reviews the rationale and the evolution of the current framework, the corresponding global standards, and developments in the financial markets before framing its proposals. Also Read: Budget Expectations: Telcos seek Rs 35,000 crore input tax credit refund, GST waiver on licence fee

The paper proposes to comprehensively align the prudential framework with the global standards while retaining some elements considering the domestic context. Also Read: AGS Transact Tech IPO: Check price band, subscription dates, offer details

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