What changed
This master circular consolidates and updates all previous instructions on investment portfolio prudential norms issued up to June 30, 2007, replacing the July 1, 2006 master circular. It incorporates new guidelines on areas such as non-SLR investments, investment fluctuation reserve, and uniform accounting for repo/reverse repo transactions.
What it means for you
Banks must ensure their internal investment policies align with the updated norms, especially regarding classification of securities into Held to Maturity, Available for Sale, and Held for Trading categories. The circular reinforces the need for robust internal controls, audit mechanisms, and proper valuation of both SLR and non-SLR securities, impacting provisioning for non-performing investments.
What you must do
- Review and update your bank's internal investment policy to comply with the latest master circular, obtaining board approval.
- Ensure proper classification of all investment securities into HTM, AFS, or HFT categories and adhere to shifting norms.
- Implement uniform accounting for repo and reverse repo transactions as specified in the circular.
- Strengthen internal control systems, audit reviews, and reporting of investment transactions.
- Verify that valuation of unquoted securities follows the prescribed methods for each instrument type.
Who it affects
All commercial banks (excluding Regional Rural Banks), Treasury and investment departments, Risk management and compliance teams, Internal audit and board-level committees
What is the key change in this master circular compared to the 2006 version?
This circular updates the previous master circular by incorporating all instructions issued up to June 30, 2007, including new guidelines on non-SLR investments, investment fluctuation reserve, and uniform accounting for repo/reverse repo transactions.
Does this circular apply to Regional Rural Banks?
No, the circular explicitly excludes Regional Rural Banks (RRBs) from its scope. It applies to all other commercial banks.
What should banks do if they have not updated their investment policy recently?
Banks must immediately review and revise their internal investment policy to align with this master circular, obtain board approval, and ensure compliance with all classification, valuation, and operational norms.