RBI Amends Investment Portfolio Rules for Commercial Banks

RBI/2026-27/34 DOR.STR.REC.9/00-00-001/2026-27 April 27, 2026 Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio)- Amendment Directions, 2026 Please refer to Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025 (hereinafter referred to as ‘the Directions’). 2. Consequent to the issuance of Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 and in exercise of the powers conferred by the section 35A of the Banking Regulation Act, 1949 and all other laws enabling the Reserve Bank in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified. 3. The Amendment Directions modify the Directions as under: (1) Paragraph 4 shall be modified to insert definitions (1A), (11A), (12A), (17A), (23A), (37A), (42A) as specified below: i. (1A) ‘Amortised cost’ of a financial instrument means the amount at which the financial instrument is measured at a reporting date subsequent to initial recognition, after taking into account principal repayments and the cumulative amortisation, using the Effective Interest Rate method, of any difference between the amount at initial recognition and the maturity amount, adjusted for any loss allowance. ii. (11A) ‘Effective interest rate (EIR)’ is the rate that exactly discounts estimated future cash payments or receipts flows through the expected life of the instrument to the gross carrying amount of a financial asset. It shall be computed as per the provisions of the Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 . iii. (12A) ‘Expected credit loss (ECL)’ means the weighted average of credit losses under different scenarios with the respective probabilities of the various scenarios as the weights. It shall be computed as per the provisions of the Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 . iv. (17A) ‘Gross carrying amount of a financial asset’ is the amortised cost of a financial asset, before adjusting for any loss allowance. It shall be computed as per the provisions of the Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 , unless otherwise specified. v. (23A) ‘Loss allowance’ means an accounting provision for ECL on financial instruments and shall be computed as per the provisions of the Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 , unless specified otherwise. vi. (37A) ‘Stage 1 / 2/ 3’ shall have the same meaning as defined in the Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 . It shall be computed as per the provisions of the aforesaid Directions. vii. (42A) ‘Transaction cost’ shall have the same meaning as defined in the Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 . (2) The definition 4(4) shall be modified as below: 4(4) ‘Carrying cost’ in the context of zero-coupon discounted instruments such as Treasury Bills, Commercial Papers, Certificate of Deposits, and Zero-Coupon Bonds is the acquisition cost adjusted for the discount accrued using the effective interest rate method / at the rate prevailing at the time of acquisition, as applicable. (3) The definition 4(14) shall be modified as below: 4(14) ‘Financial asset’ means any asset that is: (a) cash; (b) an equity instrument of another entity; or (c) contractual right to receive cash, or another financial asset from another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. (4) Explanation to paragraph 35(2) shall be modified as below: Explanation: ‘Principal’ for the purposes of determining eligibility under the SPPI criteria is fair value of security at initial recognition, and it may change over the life of the security based on repayment or amortisation using the EIR method. (5) Paragraph 43 shall be modified as below: 43. A bank shall measure all investments at fair value on initial recognition. However, initial recognition for investments classified under HTM or AFS shall be at fair value plus or minus transaction costs that are directly attributable to the acquisition or origination of the financial asset unless otherwise specifically provided under these Directions. Provided that, unless facts and circumstances suggest that the fair value is materially different from the acquisition cost, it shall be presumed that the acquisition cost is the fair value. The presumption of acquisition cost as fair value shall be tested under the following situations: (1) The transaction is between related parties (excluding transactions on NDS-OM); (2) The transaction is taking place under duress where one party is forced to accept the price in the transaction; (3) The transaction is done outside the principal market for that class of securities; or, (4) Other situations, where in the opinion of the supervisor, facts and circumstances warrant testing of the presumption. (6) Paragraph 48 shall be modified as below: 48. A bank shall measure securities classified under HTM at amortised cost using the EIR method and such securities shall not be marked to market (MTM) after initial recognition. Explanation: i. EIR shall be computed as per the provisions of Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 . ii. However, the fair value of the securities outstanding as on March 31, 2027, shall be the new gross carrying amount, for the purpose of transition to the aforesaid Directions. Any difference between the previous carrying amount and the fair value (adjusted for the impact of applicable taxes, if any) shall be adjusted to the Revenue / General Reserve and shall not be routed through Profit and Loss account. The EIR on such investments shall be computed based on the fair value as on March 31, 2027, and the remaining estimated future cash flows, and shall be applied prospectively from April 1, 2027. The bank shall recognise loss allowance on such investments based on the credit risk stage (Stage 1 / 2 / 3) as determined under the Reserve Bank of India (Commercial Banks-Asset Classification, Provisioning and Income Recognition) Directions, 2026 . These securities shall be subject to income recognition, asset classification, and provisioning norms as specified in paragraphs 95 to 104 of these Directions. (7) Paragraph 49 shall stand deleted. (8) Paragraph 50 shall be modified as below: 50. A bank shall fair value securities classified under AFS at least on a quarterly basis, if not more frequently. The discount or premium on the acquisition of debt securities under AFS shall be amortised using the EIR method. (9) Paragraph 51 shall be modified as below: 51. A bank shall aggregate the valuation gains and losses across all Stage 1 and Stage 2 investments held under AFS, irrespective of classification (e.g., Government Securities, Other approved securities, Bonds, and Debentures). The net appreciation or depreciation (adjusted for the effect of applicable taxes, if any) shall be directly credited or debited to a reserve named AFS-Reserve without routing through the Profit & Loss Account. (10) Paragraph 57 shall stand deleted. (11) Paragraph 61(1) shall be modified as below: (1) Where the investment is held under HTM, the amortised cost shall be the revised carrying value. (12) Paragraph 62(1) shall be modified as below: (1) Where the investment is reclassified into HTM, the fair value on the date of such reclassification is the new gross carrying amount. The difference between the fair value and previous carrying value shall be transferred to Profit and Loss Account. The EIR applicable to investments reclassified to HTM shall be computed on the date of reclassification based on the gross carrying amount on that date and the remaining estimated future cash flows. The bank shall recognise the loss allowance based on the credit risk stage (Stage 1 / 2 / 3) of the investment as determined on the date of reclassification. (13) Paragraph 62(2) shall be modified as below: (2) Where the investment is reclassified into AFS or FVTPL, the fair value on the date of such reclassification shall be the revised carrying value. The difference between the revised and previous carrying value shall be transferred to AFS-Reserve and Profit and Loss Account, in case of reclassification into AFS and FVTPL respectively. The EIR applicable to investments reclassified as AFS debt securities shall be computed on the date of reclassification based on the fair value on that date and the remaining estimated future cash flows. The bank shall recognise the loss allowance on such investments based on the investment’s credit risk stage (Stage 1 / 2 / 3) as determined on the date of reclassification. (14) FAQ 23 shall stand deleted. (15) The table under Paragraph 68 shall be modified as below: Sl. No.

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/34 · issued 27 Apr 2026. The plain-English explanation above is BankPulse’s own independent summary.

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