What changed
Earlier, FIMMDA guidelines required non-SLR special securities to be valued at a 50 bps mark-up over comparable G-sec yields. RBI has now reduced this spread to 25 bps for valuation purposes, effective from the 2008-09 financial year. The change applies only to special securities issued directly to beneficiary entities that lack SLR status.
What it means for you
Co-operative banks holding these illiquid special securities will see a lower valuation discount, improving their reported portfolio values. This reduces the hit to capital and provisioning requirements for such holdings. However, the securities remain non-SLR and illiquid, so banks must still manage liquidity risk carefully.
What you must do
- Revalue all non-SLR special securities (e.g., Oil Bonds, Fertilizer Bonds) using the new 25 bps spread from FY 2008-09 onwards.
- Update internal valuation models and reporting systems to reflect the revised spread.
- Ensure compliance with FIMMDA guidelines as amended by this circular for all affected securities.
- Monitor the list of eligible special securities and confirm SLR status for each holding.
Who it affects
State Co-operative Banks, Central Co-operative Banks, Treasury and investment departments of co-operative banks, Auditors and compliance teams handling bank portfolios
Which securities are covered under this circular?
The circular covers special securities issued directly by the Government of India to beneficiary entities that do not qualify for SLR. Examples include Oil Bonds, Fertilizer Bonds, bonds to SBI (rights issue), UTI, IFCI, FCI, IIBI, erstwhile IDBI, and erstwhile SDFC.
Does this change affect SLR compliance?
No. These securities remain non-SLR and cannot be used to meet statutory liquidity ratio requirements. The circular only changes the valuation spread for accounting purposes.
When does the new valuation spread take effect?
The revised spread of 25 bps applies from the financial year 2008-09 onwards.