More Stories

Informist, Tuesday, Apr. 1, 2025

--RBI issues clarifications on investment portfolio directions for banks

NEW DELHI – The Reserve Bank of India Tuesday said that special securities that banks got from the government towards their recapitalisaton will initially be recognised at their fair value based on valuations put out by Financial Benchmarks India Ltd, in line with extant norms. "Any difference between the acquisition cost and fair value so arrived shall be immediately recognized in the Profit and Loss Account," the RBI said.

The central bank issued a revised list answering frequently asked questions on its Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023. Banks had sought clarification on the valuation of recapitalisation bonds after the guidelines came into effect on Apr. 1, 2024, and whether the difference should be recognised on their balance sheet or profit and loss account.

Further valuation of these securities will be based on the pricing for unquoted non-statutory-liquidity-ratio eligible securities, the RBI said. In case the bonds have been quoted and there have been transactions within 15 days prior to the valuation date, the value adopted should not be higher than the rate of the transaction, the guidelines say.

Recapitalisation bonds were treated as a 'below-the-line' item by the government and are fiscal deficit-neutral except for the interest costs. In 2020-21 (Apr-Mar), the government had infused 200 bln rupees into five public sector banks through recapitalisation bonds. The use of zero-coupon bonds--which are issued at a deep discount to the face value--to recapitalise state-owned banks was not favoured by the RBI.

The rest of the clarifications published by the RBI Tuesday had no material difference from the frequently asked questions published by the Fixed Income Money Market and Derivatives Association of India. The central bank had substituted the word "paragraph" with "clause" when referring to parts of the investment portfolio norms.  End

Reported by Aaryan Khanna

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.