What changed
The exemption from mark-to-market norms for RRBs' investments in SLR securities, originally granted up to FY 2005-06, has been extended for FY 2006-07. RRBs now have the freedom to classify their entire SLR portfolio under Held to Maturity for this period, with valuation on book value basis and amortisation of premium over the remaining life of securities.
What it means for you
This extension provides RRBs with continued relief from market volatility in their SLR portfolios, allowing them to avoid marking losses to their profit and loss statements. It simplifies valuation and reduces capital adequacy pressure, but may mask underlying interest rate risks. Banks should note this is a temporary measure for one more year.
What you must do
- Classify entire SLR securities portfolio under Held to Maturity for FY 2006-07 as per the circular.
- Ensure valuation is done on book value basis with premium amortisation over remaining life.
- Acknowledge receipt of the circular to the respective RBI Regional Office.
- Monitor any future RBI guidance on MTM norms beyond FY 2006-07.
Who it affects
All Regional Rural Banks (RRBs), Sponsor Banks of RRBs
What is the key change in this circular?
RBI has extended the exemption from mark-to-market norms for RRBs' SLR securities by one year, covering FY 2006-07, allowing them to classify the entire portfolio under Held to Maturity.
How should RRBs value their SLR securities under this exemption?
RRBs must value the securities on book value basis and amortise any premium over the remaining life of the securities.
Does this circular apply to all RRBs?
Yes, it applies to all Regional Rural Banks and their Sponsor Banks as per the circular addressed to their Chairmen.