What changed
Previously, only SLR securities and specific non-SLR items (like recap bonds, RIDF deposits) could be held in HTM beyond the 25% cap. This circular added long-term infrastructure bonds (min 7-year residual maturity) to the list of non-SLR securities eligible for HTM classification without counting toward the 25% ceiling. The change was effective from April 23, 2010.
What it means for you
Banks can now park long-term infra bonds in HTM, avoiding mark-to-market volatility and reducing capital charge on these investments. This encourages banks to fund infrastructure projects without worrying about interest rate risk on their investment book. However, banks must ensure the bonds meet the 7-year residual maturity condition and are issued by companies genuinely engaged in infrastructure activities.
What you must do
- Review your current HTM portfolio to identify infra bonds that qualify under the new exemption.
- Ensure all infra bonds classified under HTM have a minimum residual maturity of seven years at the time of classification.
- Update internal investment policy and reporting systems to reflect the new HTM eligibility for infra bonds.
- Train treasury and compliance teams on the revised HTM classification rules to avoid misclassification.
Who it affects
Treasury departments of all scheduled commercial banks (excluding RRBs), Credit teams handling infrastructure project financing, Risk management teams monitoring investment portfolio classification, Compliance officers ensuring adherence to RBI prudential norms
Does this circular allow all non-SLR bonds to be classified under HTM?
No, only long-term bonds (minimum residual maturity of seven years) issued by companies engaged in infrastructure activities are eligible. Other non-SLR securities remain ineligible for fresh HTM classification, except for recap bonds, equity in subsidiaries/joint ventures, and RIDF/SIDBI/RHDF deposits.
Will infra bonds classified under HTM count toward the 25% ceiling?
No, these bonds are explicitly exempt from the 25% of total investments ceiling for HTM, similar to recap bonds and RIDF deposits. They are counted separately.
What happens if an infra bond's residual maturity falls below seven years after classification?
The circular does not address post-classification maturity changes. Typically, once classified under HTM, the bond remains there until maturity, but banks should consult RBI for any reclassification if the issuer's status changes.