What changed
RBI observed banks frequently selling HTM securities to book profits, undermining the 'hold to maturity' intent. To discourage this, a 5% threshold on sales/transfers from HTM was introduced. Exceeding it requires FIs to disclose HTM market value and any unprovided depreciation in notes to accounts.
What it means for you
FIs can no longer freely churn HTM portfolios for gains without disclosure consequences. The 5% cap forces disciplined portfolio management; exceeding it exposes hidden MTM losses. This aligns FIs with bank norms, reducing regulatory arbitrage and promoting genuine long-term holding.
What you must do
- Monitor HTM sales/transfers against 5% book value threshold at year-start.
- If threshold is breached, arrange for market value disclosure and excess book-over-market provision in annual accounts.
- Review HTM classification policies to avoid frequent shifts; obtain Board approval for any planned transfers.
- Train treasury teams on the new disclosure trigger to prevent inadvertent non-compliance.
Who it affects
All-India Term Lending and Refinancing Institutions (Exim Bank, NABARD, NHB, SIDBI), FI treasury and compliance departments, Auditors reviewing FI annual financial statements
What is the 5% threshold based on?
It is 5% of the book value of HTM investments held at the beginning of the accounting year.
What happens if we exceed the 5% limit?
You must disclose the market value of HTM investments and the excess of book value over market value for which no provision has been made, in the 'Notes to Accounts' of audited annual financial statements.
Does this apply to banks as well?
The circular specifically addresses All-India Term Lending and Refinancing Institutions, but similar norms for banks were already in place.