What changed
The exemption from mark-to-market valuation for RRBs' investments in SLR securities, which was earlier granted up to FY 2004-05, has been extended for FY 2005-06. RRBs can now classify their entire SLR securities portfolio under Held to Maturity for this financial year, valuing it at book value and amortising any premium over the remaining life of the securities.
What it means for you
This extension gives RRBs relief from market volatility in their SLR portfolios for another year, simplifying valuation and reducing the need for frequent provisioning. It allows RRBs to maintain stable book values, which can support their capital adequacy and earnings stability, especially for smaller banks with limited treasury expertise.
What you must do
- Classify the entire SLR securities portfolio under Held to Maturity for FY 2005-06 as per the circular.
- Value these securities at book value and amortise any premium over the remaining life of the securities.
- Acknowledge receipt of this circular to the respective RBI Regional Office.
Who it affects
All Regional Rural Banks (RRBs), Sponsor Banks of RRBs
What does 'mark to market' exemption mean for RRBs?
It means RRBs do not have to revalue their SLR securities to current market prices for accounting purposes. Instead, they can hold them at book value, which avoids recognising temporary market losses in their profit and loss statements.
Can RRBs still sell securities classified under Held to Maturity?
The circular does not address sale restrictions. Typically, HTM securities are held till maturity, but any sale may require regulatory approval or trigger reclassification rules. RRBs should refer to broader RBI guidelines on HTM classification.