What changed
The exemption from mark-to-market norms for RRBs' investments in SLR securities, which was previously granted up to FY 2007-08, has been extended for FY 2008-09. RRBs can now classify their entire SLR 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 provides RRBs with continued relief from market volatility in their SLR portfolios, allowing them to avoid marking down securities to market prices. It simplifies valuation and reduces pressure on their profit and loss statements, especially in a rising interest rate environment. Banks can maintain stable book values for these securities, aiding capital planning.
What you must do
- Classify your entire SLR securities portfolio under Held to Maturity for FY 2008-09.
- Value these securities at book value and amortise any premium over their remaining life.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
- Review your investment classification policies to align with this exemption for the current financial year.
Who it affects
All Regional Rural Banks (RRBs), Sponsor Banks of RRBs
What does this exemption mean for RRBs' financial reporting?
RRBs can avoid marking their SLR securities to market for FY 2008-09, valuing them at book value instead. This prevents potential losses from market price fluctuations from hitting their profit and loss account.
Can RRBs still trade SLR securities under this exemption?
The circular allows classification of the entire SLR portfolio under Held to Maturity, which typically restricts active trading. However, the specific trading flexibility is not addressed in this notification; banks should follow existing RBI guidelines on HTM classification.
Is this exemption applicable for future financial years beyond 2008-09?
No, the circular explicitly extends the exemption only for FY 2008-09. Future years will require separate RBI review and notification.