RBI proposes new norms for classification, valuation of banks’ funding portfolio

The Reserve Financial institution of India (RBI) on Friday proposed new norms for the classification and valuation of the funding portfolio of banks, with a view to align them with the worldwide prudential framework and accounting requirements. In line with the proposed norms, the funding portfolio of banks might be divided into three classes — held-to-maturity (HTM), obtainable on the market (AFS), and honest worth by revenue and loss account (FVTPL). Inside FVTPL, held-for-trading (HFT) shall be a sub-category aligned with the specs of ‘Buying and selling E book’ as per the Basel-III framework. The brand new financial institution portfolio classification norms will come into impact from April 1, 2023, the RBI paper mentioned, whereas inviting feedback on a dialogue paper on this regard from stakeholders by February 15. The brand new norms suggest to bridge the hole between the present pointers and world requirements and practices on the subject of classification, valuation and operations of the funding portfolio of business banks.

The extant directions pertaining to the prudential norms on the classification and valuation of the funding portfolio are largely primarily based on the Report of Casual Group on Valuation of Banks’ Funding Portfolio (Convenor: T C Nair), which was submitted in 1999. The suggestions of this casual group culminated within the situation of prudential pointers on the funding portfolio in October 2002, which varieties the premise of our present norms. There have been vital developments within the world prudential framework, accounting requirements in addition to within the monetary markets-both home and world prior to now 20 years. Whereas the RBI has been tweaking the rules in response to conditions as they emerge, a complete overview has not been undertaken to this point, leading to a large hole between the nation’s norms and the worldwide requirements and practices, the central financial institution mentioned.

It’s in opposition to this backdrop {that a} dialogue paper, on ‘Assessment of Prudential Norms for Classification, Valuation and Operations of Funding Portfolio of Industrial Banks’, critiques the rationale and the evolution of the present framework, the corresponding world requirements, and developments within the monetary markets earlier than framing its proposals. The paper proposes to comprehensively align the prudential framework with the worldwide requirements whereas retaining some parts contemplating the home context.

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