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Corporate Laws Central Ministry of Finance Reserve Bank of India Act, 1934

Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2023

12-Sep-2023 | RBI/DOR/2023-24/104 DOR.MRG.36/21.04.141/2023-24

Reserve Bank of India (RBI) has introduced the Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2023, which will be in effect from April 1, 2024. Key Points: 1. Background: Following a discussion paper issued in January 2022, the RBI has released revised guidelines concerning the classification, valuation, and management of investment portfolios held by commercial banks. 2. Principle-Based Classification: The new directions introduce a principle-based classification system for investment portfolios. It also enforces stricter regulations regarding transfers to and from the held to maturity (HTM) category, as well as the sale of securities from the HTM category. 3. Inclusion of Non-SLR Securities: Non-SLR (Statutory Liquidity Ratio) securities can now be included in the HTM category, provided specific conditions are met. 4. Symmetric Recognition of Gains and Losses: The guidelines ensure symmetric recognition of gains and losses. 5. Enhanced Financial Reporting: These directions are anticipated to elevate the quality of financial reporting for banks. This includes more comprehensive disclosures, such as fair value of investments in the HTM category, fair value hierarchy, sales from HTM, and more. 6. Boost to Corporate Bond Market: The revised guidelines are expected to stimulate the corporate bond market and encourage the use of derivatives for hedging purposes. 7. Prudential Safeguards: While aligning the accounting norms with global standards, essential prudential safeguards like Investment Fluctuation Reserve (IFR) and due diligence/limits for non-SLR investments have been retained. 8. Applicability: These revised directions will be applicable to all commercial banks (excluding Regional Rural Banks) from the financial year beginning on April 1, 2024.

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