What changed
RBI relaxed provisioning requirements for UCBs shifting SLR securities from HFT/AFS to HTM category, as permitted earlier in September 2004. Scheduled UCBs can now amortize the resulting depreciation over five years (minimum 20% annually) instead of full immediate provisioning. Non-scheduled UCBs can transfer at book value, with premium amortized over remaining maturity and discount booked as profit only at maturity.
What it means for you
This relaxation eases the immediate provisioning burden on UCBs, allowing them to manage capital more flexibly during the transition. However, transferred securities cannot be reclassified back to AFS/HFT, and must be held to maturity except in exceptional circumstances. Banks must build sufficient provisions and comply with all investment norms by March 31, 2009.
What you must do
- Identify SLR securities shifted from HFT/AFS to HTM under the September 2004 circular and calculate the provisioning requirement.
- For scheduled UCBs, amortize the depreciation over five years starting FY2004-05, with at least 20% each year.
- For non-scheduled UCBs, transfer at book value, amortize premium over remaining maturity, and book discount only at maturity.
- Maintain a separate HTM sub-portfolio for these securities and ensure no future reclassification to AFS/HFT.
- Build sufficient provisions to meet all investment norms by March 31, 2009, and do not write back provisions already made as of March 31, 2004.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Scheduled UCBs, Non-Scheduled UCBs
Can we sell securities transferred to HTM under this relaxation?
Only in exceptional circumstances. Profit on sale must go to Capital Reserve after P&L, and loss must be recognized in P&L in the sale year.
Does this relaxation apply to future investments after April 1, 2005?
No, this is a one-time measure for the current accounting year ending March 31, 2005. Existing guidelines apply to all fresh investments from April 1, 2005.