What changed
RBI observed banks using different methods to amortise premium on HTM securities. It clarified that the amortised amount must be shown as a deduction under 'Profit on revaluation of investments' in Schedule 14 of the P&L account, and the book value of the security must be reduced by the same amount.
What it means for you
Banks must now follow a single, prescribed accounting treatment for premium amortisation on HTM bonds, ensuring consistency in financial statements. This impacts how bond premium costs are recognised in profit and loss, and affects the carrying value of HTM securities on the balance sheet.
What you must do
- Amortise the premium on HTM securities over the remaining maturity period.
- Record the amortised amount as a deduction under 'Profit on revaluation of investments' in Schedule 14 of the P&L account.
- Reduce the book value of the HTM security by the amortised amount each accounting period.
- Apply this methodology for all financial statements, including for the year ended March 31, 2007.
Who it affects
All scheduled commercial banks (excluding RRBs), Bank finance and accounting departments, Bank auditors and compliance teams
How should we account for premium amortisation on HTM securities?
The amortised amount must be deducted under 'Profit on revaluation of investments' in Schedule 14 of the P&L account, and the book value of the security should be reduced accordingly.
Does this apply to securities shifted from AFS to HTM?
Yes. When shifting from AFS to HTM, the security is valued at the least of acquisition cost, book value, or market value. Any premium above face value must be amortised over the remaining maturity.
When does this directive take effect?
The directive applies to financial statements finalized after April 20, 2007, including for the year ended March 31, 2007.