bank investment classification & valuation

8/7/2019 Bank Investment Classification & Valuation

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Mr.B.J.VedMr.B.J.Ved


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In balance sheets of banks, investments are disclosed in 6 classifications

i.e.

a) Govt. securities

b) Other approved securities

c) Shares

d) Debentures & Bonds

e) Subsidiaries / Joint Ventures and

f) Others (C.P., Mutual Funds etc.)

Banks are required to decide the category of the investment at the time of

acquisition / purchase.

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In 3 categories

i. Held To Maturity (HTM)

ii.Held For Trading (HFT)

iii.Available For Sale (AFS)

i. Held To Matur ity (HTM)

Securities acquired by banks with intentions to hold them upto maturity.

Investment under this category generally upto 25% of banks total investment.

W.e.f. 2/9/04, banks are allowed to exceed the limit of 25% provided

a) The excess comprises only of SLR securities and

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b) Total SLR securities held in HTM is not more than 25 % their DTL (Demand &

Time liabilities) as on last Friday of second preceding fortnight.

The securities need not be marked to market & is carried at acquisition cost

unless it is more than face value.

The premium should be amortised over the period remaining to maturity.

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ii. Held For Trad ing

Securities acquired by banks with intention to trade taking advantage of

short term price / interest rate movement.

To be sold within 90 days Profit / Loss taken in P/L A/c.

Will be marked to market at monthly or more frequent intervals.

Book value would not undergo any change after marked to market.

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iii. Ava ilable For Sale

Freely traded.

Marked to market at quarterly or at more frequent intervals.

Securities to be valued script wise.

Depreciation / appreciation shall be aggregated for each classification.

Net depreciation shall be provided for. Net appreciation, if any, to be ignored.

Net depreciation required to be provided for in any one classification should

not be reduced on account of appreciation in any other classification.

The book value of any individual security would not undergo any change after marking to market.

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Banks will have the freedom to decide on the ratio of holdings under HFT and

AFS, after considering various aspects such as basis of intent, trading

strategies, risk management capabilities, tax planning, manpower skills &

capital position.

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Banks may shift investments to / from HMT with the approval o the Board of

Directors once a year.

Shifting of investments from HFT to AFS is generally not allowed. However, it

will be permitted only under exceptional circumstances like not being able to

sell the security within 90 days due to tight liquidity conditions, or extreme

volatility or market becoming unidirectional.

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bank investment classification & valuation

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