What changed
Earlier, standalone PDs could classify government securities in HTM up to 100% of their paid-up capital. Now, the limit is linked to their audited net owned funds (NOF) as at end-March of the preceding financial year, computed per section 45-IA of the RBI Act, 1934. All other conditions from previous circulars remain unchanged.
What it means for you
This change aligns PDs' HTM holdings with their actual net worth, potentially allowing larger HTM portfolios for PDs with higher NOF. It reduces the need to mark securities to market, offering more balance sheet stability. Banks doing PD activities departmentally must continue following existing bank investment classification rules.
What you must do
- Recalculate your HTM limit using audited net owned funds as at end-March of the preceding financial year.
- Ensure NOF computation follows the explanatory note to section 45-IA of the RBI Act, 1934.
- Review and adjust your government securities portfolio to comply with the new HTM cap.
- Continue adhering to all other conditions specified in earlier circulars (RBI/2009-10/136 and RBI/2009-10/343).
Who it affects
All standalone Primary Dealers (PDs), Treasury and risk management teams at PDs, Banks undertaking PD activities departmentally (indirectly, as they follow separate rules)
What is the new HTM limit for standalone PDs?
Standalone PDs can now hold government securities in the HTM category up to 100% of their audited net owned funds (NOF) as at end-March of the preceding financial year, replacing the earlier limit of 100% of paid-up capital.
How is net owned funds (NOF) computed for this purpose?
NOF must be computed in terms of the explanatory note to section 45-IA of chapter III-B of the Reserve Bank of India Act, 1934. Use the audited figures as at end-March of the previous financial year.
Do banks doing PD activities departmentally need to follow this circular?
No. Banks undertaking PD activities departmentally must continue to follow the extant guidelines applicable to banks regarding classification and valuation of investment portfolios, as issued by RBI's Department of Banking Operations and Development.