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Background

In terms of Section 9 of the RBI Master Directions on classification, valuation and operation of investment portfolio of commercial banks (Directions), 2021, investments classified under “Held To Maturity” (HTM) category should be carried at acquisition cost, with the premium over the face value being amortised over the tenor of the instrument. This instruction also applies to recapitalisation bonds received from the Government of India towards banks’ recapitalisation requirement and held in the investment portfolio.

RBI vide a notification dated 31 March 2022 has amended the Master Directions and has clarified that investments in special securities received from the Government of India towards bank’s recapitalisation requirement from FY 2021-22 onwards would be recognised at fair value / market value on initial recognition in HTM. The fair value / market value of these securities shall be arrived on the basis of the prices / Yield to Maturity (YTM) of similar tenor Central Government securities put out by Financial Benchmarks India Pvt. Ltd. (FBIL). Any difference between the acquisition cost and fair value arrived as above shall be immediately recognised in the statement of profit or loss.

Effective date: The instructions come into force with effect from 31 March 2022.

To access the text of the RBI notification dated 31 March 2022, please click here

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