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Informist, Thursday, Dec. 26, 2024

 

NEW DELHI – Indian banks have begun using the held-for-trading category in their investment portfolios a lot more after the shift to new investment guidelines on Apr. 1, according to data in the Reserve Bank of India's Report on Trend and Progress of Banking in India 2023-24. The data, released Thursday, showed there was no significant change in the allocation to the held-to-maturity segment.

 

"The share of HFT (held-for-trading) category has increased from an average of 1.8% under the old regime to 9% under the new guidelines, which may be attributed to securities moving into HFT category due to the removal of 90-day holding ceiling, and better capturing of hedging benefits via derivatives," the RBI report said. It was analysing the investment portfolios of 12 public sector banks, 14 private banks and five foreign banks.

 

However, the size of the investment portfolio in the banking book has increased to 91% of the total, due to the reclassification of the available-for-sale portfolio as a banking tool rather than a trading book segment. Out of this, banks held 63.6% of their total investments under the held-to-maturity category at the end of June, against an average of 64.5% from Jul-Sept 2022 and Jan-Mar this year.

 

"With the AFS portfolio now being considered a part of the banking book along with the HTM portfolio for the purpose of computing the capital charge, the size of the banking book for capital adequacy computation purpose (HTM+AFS) has increased," the RBI report said. Only gains and losses in the held-for-trading portfolio now count in a bank's profit and loss statement. 

 

The new norms included principle-based classification of the investment portfolio, tightening of regulations around transfers to and from held-to-maturity category and sales out of held-to-maturity, inclusion of non-SLR securities in held-to-maturity subject to fulfilment of certain conditions and symmetric recognition of gains and losses. Most importantly, the norms had lifted the ceiling on having held-to-maturity holdings as a percentage of deposits.

 

"Across bank groups, the share of AFS category has reduced as banks reallocated their portfolios to HTM and HFT categories," the RBI report said. From a third in the old regime, the available for sale category made up only 22.8% of the overall portfolio as of end-June.

 

Even so, the use of the held-for-trading category is minuscule in the case of state-owned banks, which are typically more conservative with their trading activity. In contrast, the foreign banks analysed had around 40% of their investment in the held-for-trading category, with private banks in the middle of the road at a little over 10% holding in the trading book.  End

 

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

 

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