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Rbi proposes new standards for the classification and evaluation of the investment portfolio of banks

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Rbi proposes new standards for the classification and evaluation of the investment portfolio of banks

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The Reserve Bank of India (RBI) on Friday proposed new standards for the classification and valuation of banks’ investment portfolios, with a view to aligning them with the global prudential framework and accounting standards.

According to the proposed standards, the investment portfolio of banks will be divided into three categories: held to maturity (HTM), available for sale (AFS) and fair value through profit and loss (FVTPL). ).

Within the FVTPL, securities held for trading (HFT) constitute a sub-category aligned with the specifications of the “Trading Book” in accordance with the Basel-III framework.

The new banking book classification standards will take effect on April 1, 2023, the RBI document said, while urging stakeholders to comment on a discussion paper in this regard by February 15.

The new standards propose to bridge the gap between existing guidelines and global standards and practices for classifying, valuing and operating the investment portfolio of commercial banks.

The existing guidance on prudential standards on the classification and valuation of the investment portfolio is largely based on the report of the Informal Group on the valuation of the investment portfolio of banks (organizer: TC Nair), which was submitted in 1999.

The recommendations of this informal group led to the issuance in October 2002 of prudential guidelines on the investment portfolio which form the basis of our current standards. There have been significant developments in the global prudential framework, accounting standards as well as in financial markets, both domestic and global over the past two decades.

While the RBI has fine-tuned the guidelines in response to situations as they arise, a full review has so far not been undertaken, resulting in a large gap between the country’s standards and global standards and practices, the central bank said.

It is against this background that a discussion paper, titled “Review of Prudential Standards for the Classification, Valuation and Investment Portfolio Operations of Commercial Banks”, examines the rationale and evolution of the current framework, the corresponding global standards and developments in the financial markets before formulating its proposals.

The document proposes to globally align the prudential framework with global standards while retaining certain elements taking into account the national context.

Rbi proposes new standards for the classification and evaluation of the investment portfolio of banks

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