The Reserve Bank of India (RBI) today pulled up banks for frequently selling securities kept in the “held to maturity” (HTM) category to book profits in violation of prudential norms.
RBI said if the value of sale and transfer of securities held in the category exceeded 5 per cent of the book value at the beginning of the year, banks should disclose the market value of the investments held in that category.
Banks should also indicate the excess of book value over market value for which provision is not made. The details about such transaction should be disclosed in banks’ audited Annual Financial Statements, RBI said in a late night communication.
Banks are expected to hold securities classified under the HTM category till the bonds mature. They can, however, shift investments to or from HTM once a year with approval of its board.
Such shifting is normally allowed at the beginning of the accounting year. Securities in HTM bucket are not marked to market.
RBI said many banks were resorting to selling securities held under the HTM category, that too frequently, to take advantage of favourable market conditions and book profits.
