What changed
This master circular updates the July 1, 2009 version by incorporating all instructions and guidelines issued between July 1, 2009 and June 30, 2010. It consolidates the latest prudential norms for classification, valuation, and operation of investment portfolios into a single reference document.
What it means for you
Banks must ensure their investment policies and practices align with the updated norms, including classification of securities into Held to Maturity, Available for Sale, and Held for Trading categories. Valuation methods and income recognition rules are reinforced, impacting how banks report investment gains and losses. Compliance with these norms is essential for regulatory reporting and capital adequacy.
What you must do
- Review and update your bank's internal investment policy to align with the updated master circular.
- Ensure classification of all investment securities follows the prescribed categories (HTM, AFS, HFT).
- Verify valuation practices for both SLR and non-SLR securities, including unquoted instruments.
- Train treasury and compliance teams on the updated norms, especially for repo transactions and income recognition.
- Maintain proper documentation and audit trails for all investment transactions.
Who it affects
All commercial banks (excluding Regional Rural Banks), Treasury departments, Risk management teams, Compliance and audit functions, Board of directors (for policy approval)
Does this master circular replace all previous investment portfolio guidelines?
Yes, it consolidates and updates all instructions issued up to June 30, 2010, superseding the July 1, 2009 master circular. However, banks should refer to the 2021 directions for current applicability.
What are the key categories for classifying investment securities?
Securities must be classified as Held to Maturity (HTM), Available for Sale (AFS), or Held for Trading (HFT), with specific rules for shifting between categories.
Are Primary Dealer activities covered under this circular?
Yes, banks with PD businesses must include PD activities in their investment policy, but PD business is limited to government securities dealing, underwriting, and market-making.