SBI shifts SLR securities to 'held to maturity' category

The State Bank of India (SBI) has transferred SLR securities in its portfolio from "available for sale" (AFS) to "held to maturity" (HTM) segments.

This move is to shield itself from the impact of interest rate fluctuations. SBI is one of the last few banks to make the shift after the Reserve Bank of India announced a special one-time provision for banks to reshuffle their investment basket.

The other two large banks that have made a transfer in the fourth quarter are Canara Bank and Bank of Baroda. Canara Bank has shifted securities worth Rs 5,500 crore, leaving less than Rs 2,000 crore of securities in the AFS basket.

SBI made the shift last week when the benchmark 10-year paper yield came down to less than 6.45 per cent. While most banks made a shift in the second and some in the third quarter, SBI had all along been waiting for the inflation rate to come down, said senior officials.

An SBI source said the impact of the transfer will largely been taken care of by the provisioning made in the first three quarters. "Beyond this there could be a few hundred crore hit on the bottomline," the source pointed out.

The bank has, however, not taken the full advantage of the RBI norms. "It has been done in such a way that there is a scope to transfer more securities next year," said the source.

The bank's investment portfolio stands at Rs 1,90,000 crore as on December 31, 2004.

For the nine months ended December 31, 2004, the bank made a higher provision for investment depreciation at Rs 907.75 crore, up from Rs 222.60 crore in the corresponding period of the previous year.

The RBI scheme mandates that banks provision for the difference between the market price and the acquisition price of the transferred securities.

Shifting the securities from the AFS category to the HTM category will mean the securities will then be shielded from the violent interest rate movements in the market.

Interest rates in the government securities market have been on a roller coaster this year. After touching the highs of 7.33 per cent in December, the yield on the 10-year benchmark has come down to 6.51 per cent today.

The ease in rates is on the back of lower inflation figures. The latest inflation figure was at 5.25 per cent from the highs of over 8 per cent earlier in the year.