What changed
UCBs can now shift securities to/from HTM an additional time before March 31, 2006, beyond the usual annual window. For transfers to HTM made during the current financial year, where market value is lower than face value, provisioning is now based on the difference between book value and face value, amortized over the remaining period to maturity instead of a fixed five-year period.
What it means for you
This gives UCBs more flexibility to manage investment portfolios amid falling prices, reducing immediate provisioning pressure. Banks can now spread the provisioning hit over the security's remaining life, easing short-term P&L impact. However, any surplus provision from this method cannot be reversed to profit.
What you must do
- Identify securities eligible for the additional HTM shift and complete the transfer by March 31, 2006.
- Recalculate provisioning for HTM transfers using the new formula: book value minus face value, amortized over remaining maturity.
- Ensure any surplus provision from this valuation is not credited to the Profit and Loss account.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Scheduled UCBs, Treasury and investment departments of UCBs
How is provisioning calculated for securities transferred to HTM under this circular?
If market value is lower than face value, provision equals the difference between book value and face value. This amount can be amortized over the remaining period to maturity, not the earlier five-year period. This applies only to transfers made during the current financial year.
What if the security was bought at a discount to face value?
If the security was acquired at a discount to face value (i.e., book value is lower than face value), the difference should be booked as profit only at the time of maturity, not earlier.