Money & Banking

Banks seek clarity on parking G-Secs in HTM category

K Ram Kumar Mumbai | Updated on September 02, 2020

Want RBI to clarify if G-Secs purchased from secondary market on or after September 1 can be placed in held-to-maturity category

Banks have sought clarity from the Reserve Bank of India on its latest circular, ‘Statutory Liquidity Ratio (SLR) holdings in Held To Maturity (HTM) category’. Banks want to know whether secondary market purchases of Government Securities (G-Secs) issued on or after September 1, 2020, as well as purchases of G-Sec re-issuances, both in the primary and secondary markets, can be parked in the so-called HTM investment bucket.

The circular only states that banks are permitted to acquire and hold SLR securities — G-Secs and State Development Loans (SDLs) issued on or after September 1, 2020 — in HTM category. It is silent on the aforementioned investment scenarios. Hence, bankers say the RBI should shine more light on it.

The central bank enhanced the elbow room for banks to park their investment in G-Secs and SDLs issued on or after September 1 in the HTM investment bucket. Investments parked in this bucket do not require mark to market (MTM) provisioning.

RK Gurumurthy, Head of Treasury, Lakshmi Vilas Bank, said: “The interpretation of the circular is that investment in any new G-Sec issuance made on or after September 1, 2020 can be taken directly to HTM.

“It is not clear if secondary market purchases of such an issuance too can be housed in HTM. Nor is it clear if re-issuances of an existing G-Sec, purchased from both primary as well as secondary market, can be placed in HTM.”

Once a new G-Sec is auctioned, every subsequent auction of this G-Sec is a re-issuance. The RBI usually issues 4-5 new G-Secs a year and subsequently re-issues them through the year as part of the Government’s borrowing programme.

Bankers opine that this circular is probably a hint that special securities with SLR status may be issued by States to overcome their revenue shortfall. So, the enhanced HTM limit is aimed at not only encouraging banks to subscribe to G-Secs but also to these special securities, which may be issued.

Borrowing limit

With the Government upping the amount it will borrow for FY21 to ₹12 lakh crore from the earlier budgeted ₹7.80 lakh crore on account of the Covid-19 pandemic, the RBI has created more elbow room in HTM investment category to make it attractive for banks to participate in the borrowing programme.

As per the latest circular, banks can acquire and hold SLR securities issued on or after September 1 in HTM category, subject to an overall limit of 22 per cent (19.5 per cent earlier) of NDTL (net demand and time liabilities), up to March 31, 2021, which shall be reviewed thereafter.

Currently, banks are required to maintain 18 per cent of their deposits (NDTL) in SLR securities — for every ₹100 deposit that is taken, a bank has to invest ₹18 in SLR securities.

The extant limit for investments that can be held in HTM category, which does not requires MTM provisioning, is 25 per cent of total investment. With effect from September 1, banks have been allowed to exceed this limit for seven months provided the excess is invested in SLR securities within an overall limit of 22 per cent (against 19.5 per cent earlier) of deposits.

Published on September 02, 2020

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