What changed
Previously, only specific investments under sub-sections (ii) and (iii) of paragraph 34.2.2 were excluded from the 25% HTM cap. Now, investments made by AIFIs as per their statutory mandates in long-term bonds/debentures (minimum residual maturity of 3 years at investment) issued by non-financial entities are also excluded from this ceiling.
What it means for you
This amendment gives AIFIs more flexibility to hold long-term bonds of non-financial firms without breaching the HTM limit, encouraging them to fund infrastructure and corporate projects. Banks and lenders dealing with AIFIs may see increased demand for such instruments, potentially improving liquidity in the long-term bond market.
What you must do
- Update internal HTM classification policies to exclude eligible long-term bonds/debentures from the 25% ceiling for AIFIs.
- Review statutory mandates to identify qualifying investments in non-financial entity bonds with 3+ years residual maturity.
- Communicate the change to treasury and compliance teams to ensure alignment with the April 1, 2025 effective date.
- Monitor AIFI investment portfolios for increased holdings in long-term bonds, which may affect market dynamics.
Who it affects
All India Financial Institutions (EXIM Bank, NABARD, NaBFID, NHB, SIDBI), Treasury and compliance departments of AIFIs, Non-financial entities issuing long-term bonds/debentures, Banks and lenders interacting with AIFIs
Does this exemption apply to all bonds or only those from non-financial entities?
Only investments in long-term bonds and debentures (minimum residual maturity of 3 years at investment) issued by non-financial entities are exempted from the 25% HTM ceiling.
When does this circular take effect?
The instructions come into force from April 1, 2025.
Which AIFIs are covered by this amendment?
The circular applies to EXIM Bank, NABARD, NaBFID, NHB, and SIDBI.