RBI in its policy review on the 29th of September lowered the HTM limit for SLR securities by 0.50% to bring it down to 21.5% of total investments. HTM will be lowered 0.25% every quarter beginning March 2016 upto March 2017 thereby lowering the HTM limit to 20.5% in March 2017.
The entire investment portfolio of the banks (including SLR securities and non-SLR securities) are classified under three categories
Held to Maturity
Available for Sale
Held for Trading
Held to Maturity (HTM)
Held to Maturity investments are investments made by the bank. which it intends to hold till maturity. Only debt securities can be classified as HTM because they have a definite maturity. A HTM investment is reported on balance sheet at its amortized cost.
Banks are permitted to hold investments under the HTM category in excess of the limit of 25 per cent of their total investments, provided the excess comprises only SLR securities and the total SLR securities held under the HTM category are not more than 22 per cent of NDTL. As per Reserve Bank of India bimonthly policy held on 29th September 2014 the total investments under HTM category should not exceed 21.5% of the NDTL with effect from the fortnight beginning January 9, 2016. SLR and the HTM ceiling will be brought down by 0.25 per cent every quarter till March 31, 2017.Non SLR securities i.e. securities that do not qualify for Statutory Liquidity Ratio cannot be classified as HTM.
Banks can shift the investment from HTM category with the approval of the Board of Directors once a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to / from this category will be allowed during the remaining part of that accounting year.
Available for Sale (AFS)
Available for Sale portfolios have debt securities that are bought into the portfolio with the intention to sell before reaching the maturity. Banks have the freedom to decide on the extent of investment under AFS category.
Investment made under AFS category will be marked to market at quarterly or at more frequent intervals.
The net depreciation under this category should be recognised and the net appreciation under these if any, should be ignored.
Held for Trading (HFT)
Held for Trading investment are financial assets that are held with the sole intent of generating short term profits. HFT investments are reported at its fair value on the balance sheet and any change in any the value of investment or dividend and interest income received during the period of holding will be reported in the profit and loss statement.
The securities under HFT category have to be sold within 90 days of investment. If the bank is not able to sell the security within 90 days due to exceptional circumstances such as tight liquidity conditions or extreme volatility or market becoming unidirectional, the security should be shifted to the Available for Sale category.
Investment made under HFT category will be marked to market at monthly or at more frequent intervals.