Published blog Details

Posted by: Uma Shashikant on Wed, Aug 18th, 2010

RBI Circular on HTM Categorisation

RBI recently issued a circular clarifying the treatment of transactions in government securities in the 'held to maturity'(HTM) category.  

 

The Circular notes that banks are trading securities held in the HTM category and asks them to disclose any losses from such transactions if they exceed 5% of the book value.  The Circular also asks banks to disclose that these losses have not been provided for. The Circular does not say 'losses' but alludes to providing for any excess of book value over market value, which refers to the market value being the lower number, thus creating an unrealised loss.

 

Banks are allowed to classify the securities in their investment portfolio into three categories - held to trade (those securities intended to be traded in the next 90 days) and held to maturity (those securities not intended for trading, but held until maturity) and available for sale (an intermediate category that is neither HTT nor HTM). Securities in HTM are classified as such, typically at the beginning of the year, and are not meant to be traded. No transfers from or to HTM is allowed during the year. Therefore "Sale of investments in the HTM Category" (the heading of the circular) is rather strange.

 

The RBI Circular raises the following questions:

 

a. As long as disclosures are made, is it fine to trade the HTM securities, without reclassifying them?

 

b. Since the Circular alludes to sale and transfers from HTM, of value over 5% of book value at the start of the year, will it apply to all transfers from HTM, including the once-a-year transfer to other categories? 

 

Perhaps RBI will issue a clarification soon.

Post comment

Subscribe to Newsletter

Online Courses

Macro Economics
Basic Level
MACRO ECONOMICS MADE EASY

This course gives you a thorough understanding of the key concepts in macro-economics and how to apply them

Macro Economics
Intermediate Level
UNDERSTANDING MONETARY POLICY

Monetary policies are designed to maintain price stability and ensure economic growth. Learn how monetary p

Macro Economics
Advance Level
EXCHANGE RATE AND EXTERNAL SECTOR

Understand how exchange rates fluctuate and the various factors that influence them through this online cou

Macro Economics
Advance Level
GOVERNMENT FINANCES AND FISCAL POLICY

Learn about the different sources of government revenue in economics and the implementation of fiscal polic

Macro Economics
Intermediate Level
MACRO ECONOMICS INDICATORS 1 - OUTPUT AND GROWTH

Learn how to measure economic growth and output through the macroeconomic indicators that influence it.

Macro Economics
Intermediate Level
MACRO ECONOMICS INDICATORS 2 - INFLATION

Learn about the macroeconomic indicators of inflation and their management through this online course.

Contact us