What changed
The special dispensation allowing banks to hold up to 23% of NDTL in HTM for SLR securities, originally ending March 31, 2023, is now extended to March 31, 2024. Securities acquired between September 1, 2020 and March 31, 2024 can be included under this enhanced limit. After March 31, 2024, the limit will be reduced in quarterly steps: 22% by June 30, 2024, 21% by September 30, 2024, 20% by December 31, 2024, and finally 19.5% by March 31, 2025.
What it means for you
Banks get additional time to manage their HTM portfolios without being forced to sell securities prematurely, which helps in smoother balance sheet management amid interest rate volatility. The phased reduction from June 2024 gives banks a clear runway to adjust their holdings, avoiding a sudden spike in bond yields or mark-to-market losses. Lenders should plan their investment strategies to align with the gradual normalization of the HTM limit.
What you must do
- Review your current HTM holdings and ensure SLR securities acquired up to March 31, 2024 are eligible for the enhanced 23% limit.
- Prepare a phased reduction plan to bring HTM holdings down to 22% by June 30, 2024, and further to 19.5% by March 31, 2025.
- Monitor NDTL growth to avoid breaching the quarterly HTM caps during the reduction period.
- Update internal investment policies and reporting systems to reflect the extended timeline and phased restoration.
Who it affects
All commercial banks in India, Treasury and investment departments, Risk management and ALM teams
What is the new deadline for using the enhanced HTM limit of 23%?
The enhanced HTM limit of 23% of NDTL is now available until March 31, 2024, for SLR securities acquired between September 1, 2020 and March 31, 2024.
How will the HTM limit be reduced after March 2024?
Starting June 30, 2024, the limit will be reduced in quarterly steps: 22% by June 30, 2024, 21% by September 30, 2024, 20% by December 31, 2024, and finally 19.5% by March 31, 2025.
Does this circular apply to all banks?
Yes, it applies to all commercial banks in India, as stated in the circular.