On 12-9-2023, the Reserve Bank of India (‘RBI’) notified the Classification, Valuation and Operation of Investment Portfolio of Commercial Banks, Directions, 2023 updating the regulatory guidelines with global standards and best practices. The provisions will come into force on 1-4-2024.

Applicability: Applicable to all Banking Companies, corresponding new banks and State Bank of India excluding Regional Rural Banks (‘RRBs).

Key Points:

  1. General Guidelines for Investment Policy Framework:

    • The Banks will have to adopt a comprehensive investment policy which is duly approved by Board of Directors, which includes investment criteria and objectives, derivatives in which the bank will deal, procedure for obtaining the sanction of the appropriate authority and putting through deals, etc.

  2. Classification of Investment by Banks: Investment Portfolio will be classified under 3 categories, namely, Held to Maturity (‘HTM’), Available for Sale (‘AFS’) and Fair Value through Profit and Loss (‘FVTPL’).

  3. Audit, Review and Reporting: Banks will have to adhere to the following instructions:

    • A half-yearly review (as of March 31 and September 30) of the investment portfolio will be undertaken by the banks which have be placed before their Boards within two months, i.e., by end-May and end-November.

    • Treasury transactions will be subjected to concurrent audit by internal auditors and the results of their audit should be placed before the Chief Executive of the bank once every month.

    • The Audit Committee of the Board will keep the Board informed about the overall exposure to capital markets, the compliance with the Reserve Bank and Board guidelines, adequacy of risk management and internal control systems.

Note: RBI (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2021 are still in existence.

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