What changed
RBI observed banks frequently selling HTM securities to book profits, contrary to the hold-to-maturity intent. It now requires disclosure in 'Notes to Accounts' when sales/transfers exceed 5% of HTM book value at year-start.
What it means for you
Banks can no longer freely trade HTM securities without transparency. Exceeding the 5% threshold triggers a disclosure obligation, revealing any hidden losses. This curbs profit-taking from HTM sales and reinforces the classification's purpose.
What you must do
- Monitor cumulative HTM sales and transfers against 5% of opening book value.
- If threshold is breached, compute market value and excess of book over market for disclosure.
- Include required disclosure in 'Notes to Accounts' of audited annual financial statements.
- Ensure board approval for any HTM shifts, limited to once per accounting year.
Who it affects
All commercial banks (excluding RRBs), Treasury and investment departments, Finance and accounts teams handling disclosures
What triggers the disclosure requirement?
If the value of sales and transfers to/from HTM exceeds 5% of the book value of HTM investments at the beginning of the year.
What must be disclosed in the Notes to Accounts?
The market value of HTM investments and the excess of book value over market value for which no provision has been made.
Can banks still sell HTM securities?
Yes, but frequent sales to book profits are discouraged. Exceeding the 5% threshold requires additional disclosure in audited accounts.