**Policy Summary: Amendment to RBI Master Direction on Investment Portfolio of Commercial Banks**
This circular, issued by the Reserve Bank of India (RBI) on March 31, 2022, amends the Master Direction DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021, concerning the Classification, Valuation, and Operation of Investment Portfolio of Commercial Banks.
The key amendment pertains to the valuation of special securities received from the Government of India by banks towards recapitalization requirements from FY 2021-22 onwards. These securities, classified under Held-to-Maturity (HTM), shall be recognized at fair value (market value) upon initial recognition. The fair value will be determined based on the prices/Yield-to-Maturity (YTM) of similar tenor Central Government securities as published by Financial Benchmarks India Pvt. Ltd. (FBIL). Any difference between the acquisition cost and the fair value will be immediately recognized in the Profit and Loss Account.
This instruction supplements Section 9 (HTM valuation at acquisition cost with premium amortization) and Section 6 (recapitalization bonds held in investment portfolio) of the Master Direction. The relevant sections of the Master Direction are being amended to reflect these changes.
This circular is applicable to all Commercial Banks, excluding Regional Rural Banks, and is effective immediately.
For further information, contact the Department of Regulation, Central Office, 12th/13th Floor, Central Office Bhavan, Shahid Bhagat Singh Marg, Mumbai – 400001. Tel No: 22661602, 22601000 Fax No: 022-2270 5670, 2260 5671, 5691, 5692. Enquiries may be directed to Usha Janakiraman, Chief General Manager.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for monetary policy and regulation of the banking system.
Commercial Banks: Banks that accept deposits, offer checking account services, and make loans.
Master Direction Classification, Valuation and Operation of Investment Portfolio of Commercial Banks Directions, 2021: A set of instructions and guidelines issued by the Reserve Bank of India pertaining to the classification, valuation, and operation of investment portfolios held by commercial banks.
Section 9 of the Master Direction: A specific section within the Master Direction document that pertains to investments classified under HTM (Held to Maturity) and their valuation.
HTM: Held to Maturity investment portfolio of banks
Government of India: The Union Government of the Republic of India.
Financial Benchmarks India Pvt. Ltd.: An organization responsible for providing benchmark interest rates and other financial benchmarks in India.
Regional Rural Banks: Commercial Banks excluding Regional Rural Banks are applicable
The guidelines have been repealed. Please refer to the Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of
Commercial Banks) Directions, 2021.
RBI/2021-22/191
DOR.MRG.REC.98/21.04.141/2021-22 March 31, 2022
Dear Sir / Madam,
Master Direction - Classification, Valuation and Operation of Investment
Portfolio of Commercial Banks (Directions), 2021 - Amendment
Please refer to the Master Direction DOR.MRG.42/21.04.141/2021-22 dated August
25, 2021 – ‘Classification, Valuation and Operation of Investment Portfolio of
Commercial Banks (Directions), 2021’ (hereinafter referred as ‘Master Direction’).
2. In terms of Section 9 of the Master Direction ibid, investments classified under HTM
shall be carried at acquisition cost, with the prenmium over the face value being
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amortised over the tenor of the instrument. It is expected that the acquisition of such
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instruments shall be at the fair value of ther security at the time of its acquisition. This
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instruction also applies to re-capitalisahtion bonds received from the Government of
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India towards banks’ recapitalisatioWn requirement and held in the investment portfolio
(cf. Section 6 of the Master Direction ibid).
3. It is clarified that investments in special securities received from the Government of
India towards bank’s recapitalisation requirement from FY 2021-22 onwards shall 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 / 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 recognized in the Profit and Loss Account.
Applicability
4. This circular is applicable to all Commercial Banks (excluding Regional Rural
Banks).
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टेलीफोन /Tel No: 22661602, 22601000 फै�/Fax No: 022-2270 5670, 2260 5671, 5691 2270, 2260 5692
Department of Regulation, Central Office, 12th & 13th Floor, Central Office Bhavan, Shahid Bhagat Singh Marg, Mumbai - 400001
Tel No: 22661602, 22601000 Fax No: 022-2270 5670, 2260 5671, 5691, 56925. The relevant sections of the Master Direction are being amended to reflect the
aforementioned changes. These instructions come into force with immediate effect.
Yours faithfully,
(Usha Janakiraman)
Chief General Manager
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