What changed
Previously, banks could hold up to 25% of DTL as SLR securities in HTM. Now, the cap is being reduced to 23% of DTL in 50 bps quarterly steps: 24.5% by June 2013, 24% by September 2013, 23.5% by December 2013, and 23% by March 2014. Banks are allowed to shift securities from HTM to AFS/HFT at the beginning of each quarter during 2013-14 instead of only once a year.
What it means for you
Banks must actively manage their HTM portfolios to comply with the lower SLR cap, which will increase the proportion of securities in AFS/HFT categories. This enhances liquidity in government securities markets but exposes banks to higher mark-to-market volatility on the shifted holdings. Lenders need to plan quarterly rebalancing and ensure board approval for the shifts.
What you must do
- Calculate your current SLR securities in HTM as a percentage of DTL (as on last Friday of second preceding fortnight).
- Ensure SLR securities in HTM do not exceed 24.5% of DTL by end-June 2013, and reduce by 50 bps each subsequent quarter.
- Shift excess SLR securities from HTM to AFS/HFT at the beginning of each quarter during 2013-14, with board approval.
- Update investment policy to reflect the phased reduction and quarterly shifting mechanism.
- Monitor DTL data fortnightly to track compliance with the new caps.
Who it affects
All scheduled commercial banks (excluding RRBs), Treasury and investment departments, Risk management teams handling market risk, Board of directors approving investment shifts
What is the new limit for SLR securities in HTM category?
The total SLR securities held in HTM cannot exceed 23% of DTL by March 2014, with interim caps: 24.5% by June 2013, 24% by September 2013, and 23.5% by December 2013.
Can we shift securities out of HTM more than once a year now?
Yes, for 2013-14, RBI allows shifting of SLR securities from HTM to AFS/HFT at the beginning of each quarter, instead of the usual once-a-year window, to facilitate the phased reduction.
What happens if we exceed the quarterly cap?
You must shift the excess SLR securities out of HTM to AFS/HFT by the end of that quarter. Failure to comply may attract regulatory action, as the cap is mandatory.