Investments in special-secs for bank’s recapitalization to be recognized at market value: RBI

Circular no. RBI/2021-22/191 DOR.MRG.REC.98/21.04.141/2021-22, Dated: 31.03.2022

The RBI has clarified w.r.t Master Direction on Classification, Valuation, and Operation of Investment Portfolio of Commercial Banks (Directions), 2021. RBI clarified that the investments in special securities received from the Govt. towards bank’s recapitalization requirement from FY 2021-22 onwards shall be recognized at fair value on initial recognition in ‘Held to Maturity (HTM). This circular is applicable to all Commercial Banks (excluding Regional Rural Banks).

As per Section 9 of the Master Direction, investments classified under HTM shall be carried at acquisition cost, with the premium over the face value being amortised over the tenor of the instrument. It is expected that the acquisition of such instruments shall be at the fair value of the security at the time of its acquisition. This instruction also applies to re-capitalization bonds received from the Government of India towards banks’ recapitalisation requirements and held in the investment portfolio

The market value of these securities shall have arrived based on the YTM of similar tenor Central Government securities put out by Financial Benchmarks India Pvt. Ltd. (FBIL). Any difference between the acquisition cost and fair value arrived as above shall be immediately recognized in the Profit and Loss Account.

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