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RBI allows shifting of securities — Breather for banks from hardening yields

Our Bureau

Mumbai , Sept. 2

THE Reserve Bank of India has given commercial banks some respite against the hardening yields in the domestic debt markets, by allowing them to transfer securities in excess of the prescribed 25 per cent limit, in the Held to Maturity category (HTM).

However, the apex bank has emphasised, in a circular issued to commercial banks here on Thursday, that they may do this only when the excess comprises only of SLR securities, and when the total SLR securities held in the HTM category is not more than 25 per cent of their Demand and Time Liabilities (DTL) as on the last Friday of the second preceding fortnight.

To enable the above, as a one-time measure, banks may shift SLR securities to the HTM category any time, once more, during the current accounting year. Such shifting should be done at the acquisition cost, book value or market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer should be fully provided for, RBI has said.

The non-SLR securities held as part of HTM may remain in that category. No fresh non-SLR securities are permitted to be included in the HTM category.

Earlier, RBI had stipulated that investments included under HTM should not exceed 25 per cent of the bank's total investments.

The central banks latest move is in light of representations received from banks that the existing guidelines of classification of investments should be reviewed with a view to bringing them in alignment with international practices and current state of risk management practices in India, taking into account the unique requirement of maintenance of statutory reserve requirement of 25 per cent of DTL.

Bankers welcomed the opportunity to shield themselves against hardening yields by shifting a portion of the securities to the HTM category, but were unhappy about having to do it at the market price. They were hoping to transfer the securities at `book-value' without accounting for depreciation.

``The market price has long since gone below the holding price of the securities. It's a good thing we have been allowed to shift a bulk of our load to the HTM category but we will have to still pay the difference. So we will take a one time hit but it is good in the long run,'' said a banker.

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