What changed
Earlier, shifting securities from 'current' to 'permanent' category required full depreciation provisioning upfront. Now, scheduled SCBs can amortize the provisioning over five years (minimum 20% annually) from FY2004-05. Non-scheduled SCBs and DCCBs can transfer at book value, with premium amortized over remaining maturity and discount booked only at maturity.
What it means for you
This relaxation eases the immediate provisioning burden for co-operative banks, allowing them to smooth out depreciation costs over time. It provides temporary relief but mandates strict segregation of transferred securities, which cannot be reclassified or sold except under exceptional circumstances. Banks must build sufficient provisions and comply fully by March 31, 2009.
What you must do
- Identify SLR securities in 'current' category eligible for transfer to 'permanent' category under this one-time relaxation.
- For scheduled SCBs, compute depreciation and amortize over five years with minimum 20% annual provision from FY2004-05.
- For non-scheduled SCBs/DCCBs, transfer at book value; amortize premium over remaining maturity and book discount only at maturity.
- Ensure transferred securities are kept separately in 'permanent' category and not sold except in exceptional circumstances, with profit/loss treatment as specified.
- Place this circular before the Board and acknowledge receipt to the concerned RBI Regional Office.
Who it affects
Scheduled State Co-operative Banks (SCBs), Non-scheduled State Co-operative Banks, District Central Co-operative Banks (DCCBs)
Can we transfer securities from 'permanent' back to 'current' category after this relaxation?
No. Securities transferred under this special dispensation must be kept separately in the 'permanent' category and cannot be transferred back to 'current' category in future.
What happens if we sell a security from this special 'permanent' category?
Sale is allowed only in exceptional circumstances. Profit on sale must first be taken to Profit & Loss Account and then appropriated to Capital Reserve. Loss on sale is recognized in the Profit & Loss Account in the year of sale.
Does this relaxation apply to investments made after April 1, 2005?
No. This is a one-time measure for the accounting year 2004-05. For all fresh investments made on or after April 1, 2005, existing guidelines continue to apply.