7 Investment Policy

Item No.
7/52
SIDBI RiMC No.27/2019-20
MEMORANDUM TO THE RISK MANAGEMENT COMMITTEE
Review of Investment Policy – FY 2021
Vertical Head: Shri Manish Sinha

1. Title for Policy
Investment Policy (IP).
2. Need for Policy
The Investment Policy elucidates the guiding principles, objectives and
overall framework for undertaking and managing the investment
activities of the Bank. A sound Investment Policy helps in expeditious
decision making and efficient risk management.
The Policy is required to be reviewed annually and was last reviewed
by the Board in its 201st meeting held on May 10, 2019.
3. Salient Features
The basic principles guiding the Investment Policy are as
follows:
a. To ensure adequate liquidity for business operations of the
Bank at all times while maximizing the returns.
b. To conduct the investment function within the framework of
this document and RBI guidelines in this regard.
c. To provide the Bank with optimum total return consistent
with the risk tolerance limits placed for various sources of
risks and other regulatory and prudential limits placed on the
portfolio as well as anticipated requirement of funds for
operations.
d. To pursue diversification as a risk reduction strategy.
4. Changes from last policy
 The IP has been reviewed and proposed changes are summarized at
Annexure I. The updated IP for FY2021 is placed at Annexure - II.
5. Approval Points
 The Committee is requested to deliberate and recommend the updated
Investment Policy for FY 2021 for approval of the Board.
Submitted by
Small Industries Development Bank of India [Manish Sinha]

Dated: January 24, 2020 General Manager
Recommended by
For Senior CGM Committee

Review of Investment Policy-FY 2021
Annexure-I
Proposed Modifications in the Investment Policy
Page Pre-revised Clause Revised Clause Remarks

No. / (Modifications highlighted in bold and italics)
S.No.
Page 5 New Clause proposed to be 1.3 The Risk Management Committee of the Board (RiMC), Deloitte Touche Tohmatsu
Sl. included which is a Board level committee is responsible for risk India LLP (Deloitte) had
No.1.3 management in the Bank. The RiMC will assist the Board in undertaken “Gap Study &
management of risks and will be responsible for reviewing the
& 1.4 Evaluation of Risk
implementation of the risk management framework, including
the Investment Policy. RiMC will recommend the Investment Management Framework of
Policy to the Board for approval. the Bank”. The report was
accepted by RiMV and then
was approved by ERMC in its
23rd meeting held on
1.4 The Board of Directors (BoD) is at the apex of Risk November 22, 2019.
Management framework. The Board will have the overall
responsibility for overseeing risk management, clearly
identifying the risks to which the capital of the Bank is The gap study by Deloitte has
exposed. suggested that the Policy
should allocate and document
the responsibility to the
appropriate teams including
the Board in the process of
review and document the
same in the Investment
Policy. The recommendation
by Deloitte was in the nature
of ‘industry leading practice’.
Page 9 / Investment in Mutual Funds Investment in Mutual Funds To bring in clarity on the
Sl. No. functional responsibility and
5.2 (iv) Transaction summary shall be put Transaction summary shall be put up to CGM , TRMV at the to be in sync with extant DOP.
up to CGM at the day end for his day end for sanctions.
perusal.
Page 1 of 11
Annexure I

S.No.
Page 10 Investment in ETF Investment in ETF To ensure alignment of the
/ Investment Policy with DoP on
Sl. No. Book Profit and Stop Loss limits Book Profit limit shall be 15% above the average acquisition an ongoing basis.
5.2.1 shall be 15% above or below the price. Stop Loss limits shall be in terms of the extant
(v) average acquisition price. Delegation of Powers.
Page 22 Maturity Profile of Investments Maturity Profile of Investments The stipulation of minimum of
/ sl. no. 30% of surplus funds in short
6.6 One of the main objectives of the One of the main objectives of the Investment Policy is to term instruments is retained.
Investment Policy is to ensure ensure adequate liquidity for business operations of the Bank However, the rationale of
adequate liquidity for business at all times while ensuring safety of investments and linking it to the growing
operations of the Bank at all times maximizing the returns. To ensure adequate funds for working capital and
while maximizing the returns. business operations, it is proposed to invest a minimum of receivable finance has been
SIDBI’s liabilities are predominantly 30% of surplus funds in short term instruments. deleted.
long term in nature vis-à-vis its
asset maturity profile. Unlike in the Besides, “SIDBI’s liabilities
past, keeping in view the growing are predominantly long term
portfolio under working capital in nature vis-a-vis its asset
arrangement and receivable maturity profile” has been
finance schemes, SIDBI is being deleted.
exposed to drawals against
sanctioned limits. To ensure
adequate funds for business
operations, it is proposed to invest
a minimum of 30% of surplus funds
in short term instruments.
Page 41 Daily Turnover Limit Daily Turnover Limit The amount being enhanced
2.12 in view of availability of
The daily turnover in the secondary The daily turnover in the secondary market for all the surplus liquidity on
market for all the categories viz., categories viz., HFT, AFS and HTM for Govt Debt as well as repayment dates and
HFT, AFS and HTM for Govt Debt as non-Govt Debt securities will have the upper limit of `1,000.00 opportunities being available
well as non- Govt Debt securities crores (F.V). In case the above turnover is exceeded for some in short tenor T-Bills, G-secs.
will have the upper limit of `300.00 reasons, the same shall be informed and got ratified from the This will mitigate the
crores (F.V). In case the above Investment Committee and reported to EC. However, challenge in deploying the
turnover is exceeded for some transactions in money market mutual funds, commercial
Page 2 of 11
Annexure I

S.No.
reasons, the same shall be paper and certificate of deposits will not be taken into account surplus by TRMV to a
informed and got ratified from the while computing the daily turnover limit. considerable extent.
Investment Committee / ALCO /
Board. However, transactions in
money market mutual funds,
commercial paper and certificate of
deposits will not be taken into
account while computing the daily
turnover limit.
Page 41 Risk measurement and Control Risk measurement and Control To ensure alignment of the
Sl. No. Cut loss and take profit limits for Cut loss and take profit limits for the HFT portfolio would be an ongoing basis.
2.13 (ii) the HFT portfolio would be at minus in terms of the Delegation of Powers in force amended from
or plus 3% of the average purchase time to time. The dealers should strictly adhere to the above
price of the security in the books. limits and exceptions if any, should be reported to the top
The dealers should strictly adhere management citing reasons for the same.
to the above limits and exceptions
if any, should be reported to the top
management citing reasons for the
same.
page 41 Risk Measurement and Control Each dealer shall be allowed to take position in a marketable Higher limits being proposed
2.13 lot of ` 5.00 crore with a maximum limit of ` 25.00 crore per in view of the turnover in
(iv) Each dealer shall be allowed to transaction in respect of GoI dated securities, except T-Bills. liquid securities and short
take position in a marketable lot of In respect of T-Bills, each dealer shall be allowed to take tenor T-Bills and to enable the
`5.00 crore per transaction in position in a marketable lot of `25 crore with a maximum limit dealers to capture
respect of GoI dated securities, of `100 crore per transaction. In exceptional circumstances or opportunities and reduce
except T-Bills. In respect of T-Bills, the rates being favourable in the bullish market, dealers shall transaction cost.
each dealer shall be allowed to take be permitted to close the deal in respect of the above
position in a marketable lot of indicated limits per transaction with due approval of the GM,
`25.00 crore per transaction. In TRMV.
exceptional circumstances or the
rates being favourable in the
bullish market, dealers shall be
permitted to close the deal in
Page 3 of 11
Annexure I

S.No.
respect of the above indicated
limits per transaction with due
approval of the GM, TFMV. .
Page 42 The overall exposure to the issuer Presently, the Risk Management Vertical of the bank fixes the The Counterparty limit is fixed
/ sl. no. shall be restricted to the individual counterparty exposure limits for various operations of the by RiMV as per the framework
3.1 exposure of 15% and group bank. The overall exposure to the issuer would be fixed, with approved by the Board and
exposure of 40% of the capital the approval of the Board , taking into account the applicable relevant regulatory
funds of the Bank, subject to regulatory guidelines and other prudential practices. To stipulations, for both the
additional exposure of 5% on reduce the various concentration related risks, the overall cap Business Operations (BO) and
account of infrastructure projects stipulated for the Bank in the Loan Policy amended from time Treasury Operations (TO).
in respect of individual borrowers to time and presently in force for each sector, industry, etc., Hence the proposed
and additional 10% in respect of would be kept in mind while undertaking Treasury modification.
group borrowers. The aggregate investments in debt and equities. The aggregate exposure
exposure will include investment will include investment operations of Treasury and credit
operations of Treasury and credit extended by the Bank.
extended by the Bank. Presently,
the Risk Management Vertical of
the bank fixes the counterparty
exposure limits for various
operations of the bank. To reduce
the various concentration related
risks, the overall cap stipulated for
the Bank in the Loan Policy
amended from time to time and
presently in force for each sector,
industry, etc., would be kept in
mind while undertaking Treasury
investments in debt and equities.
Page 43 3.2.3. Reporting requirements Deleted

Sl. There is no longer any
No.3.2.3 i) While investing in private requirement to file the
placement of debt, a copy of Investment Memorandum
the offer document should be with Credit Information
filed with the Credit Company.
Page 4 of 11
Annexure I

S.No.
Information Company (CIC).
When the Bank is itself
raising debt through private
placement, it should also file
a copy of the offer document
with Credit Information
Company (CIC).
ii) Any default relating to

payment of interest /
repayment of installment in
respect of any privately
placed debt should also be
reported to Credit
Information Company (CIC)
by the Bank along with a
copy of the offer document.
iii) The Bank should also report

to the RBI such particulars in
respect of its investments in
unlisted securities as may be
prescribed by RBI from time
to time.
iv) Since Credit Information

Bureau (India) Ltd (CIBIL) is a
one of the CIC’s, approved by
RBI and SIDBI as a member of
Credit Information Bureau
(India) Ltd (CIBIL), the above
RBI instruction would be
followed accordingly.
Page 5 of 11
Annexure I

S.No.
Page 46 Primary Market Primary Market To ensure alignment of the
Sl. No. The stop loss limit for equity shares The stop loss limit for equity shares acquired through primary an ongoing basis.
3.3.1.1 acquired through primary market is market shall be in terms of the extant Delegation of Powers.
(b) fixed at 10% of the acquisition cost.
Page 46 Secondary Market Secondary Market This is an enabling clause in

/ the absence of SMC, IC being
Sl. No. Delegated authority will approve Delegated authority will approve such investments on the a senior Committee can take
3.3.1.2 such investments on the recommendation of the Secondary Market Committee or up the role of the SMC.
(a) recommendation of the Secondary Investment Committee in the absence of Secondary Market
Market Committee. Committee.
Page 46 Deterioration in the rating Deterioration in the rating subsequent to the subscription Rating migration is required
/ subsequent to the subscription shall be monitored by Mid Office and reported by TRMV in the to be looked after and
Sl. No. shall be monitored by TRMV and review memorandum put up to the Board of Directors. reported to the competent
3.5.1. reported in the review authority by the Mid Office as
(iv) memorandum put up to the Board per the division of work.
of Directors.
Page 51 Coupon / Discount Coupon / Discount The gap study has suggested
Sl. that the Policy should define
No.4.1.1 (ii) In case the interest payment (ii) In case the interest payment date of the security offered the methodology adopted for
(ii) date of the security offered under under repo falls within the repo period, the coupons received recording of coupon for
repo falls within the repo period, by the buyer of the security should be passed on to the seller
discounted instruments like T-
the coupons received by the buyer of the security on the date of receipt as the cash consideration
of the security should be passed on payable by the seller in the second leg does not include any Bills. Besides this, the
to the seller of the security on the intervening cash flows. While the buyer will book the coupon relevant aspect as at Para 8.1
date of receipt as the cash during the period of the repo, the seller will not accrue the of the RBI Circular at Page 31
consideration payable by the seller coupon during the period of the repo. [DBR.No.FID.FIC.3/01.02.00/
in the second leg does not include 2015-16 dated July 01, 2015]
any intervening cash flows.
has been brought in.
(iii) In the case of discounted instruments like Treasury Bills,
since there is no coupon, the seller will continue to accrue the This modification will align the
discount at the original discount rate during the period of the Policy with the regulatory
Page 6 of 11
Annexure I

S.No.
repo. The buyer will not therefore accrue the discount during guideline – Master Circular –
the period of the repo. Prudential Norms for
Classification, Valuation and
Operation of Investment
Portfolio by FIs (DBR No.
FID.FIC.3/01.02.00/2015-16
dated July 01, 2015).
Page 51 The accounting principles to be The accounting principles to be followed while accounting for Modification to reflect the
/ sl. no. followed while accounting for repo repo / reverse repo transactions are given in Annexure III. correct position in the Policy.
4.1 (iv) / reverse repo transactions are as
under:
Page 52 Repo Interest Income / Expenditure Repo Interest Income / Expenditure This modification will align the
Sl. Policy with the regulatory
No.4.1.2 The difference between The difference in the clean price of the security between the guideline at Para 8.2 of
(i) consideration amounts of the first first leg and second leg should be reckoned as Repo Interest Master Circular – Prudential
leg and second leg of the repo shall Income / Expenditure in the books of the repo buyer / seller Norms for Classification,
be reckoned as Repo Interest respectively; Valuation and Operation of
Income / Expenditure in the books Investment Portfolio by FIs
of the repo buyer / seller (DBR No.
respectively ; and FID.FIC.3/01.02.00/2015-16
New Clause added as sl. no. (ii) dated July 01, 2015).
(ii) the difference between the accrued interest paid between

the two legs of the transaction should be shown as Repo
Interest Income / Expenditure account, as the case may be
Page 55 New clause proposed to be (ix) The minimum amount of securities that needs to be
Sl. included submitted for Stripping / Reconstitution will be `.1 crore (face The gap study has suggested
No.4.2. value) and multiples thereof. that the Policy should
mention the aspect related to
(ix)
tendering of securities (i.e.,
amount of security that could
be tendered for
stripping/reconstitution).
Page 7 of 11
Annexure I

S.No.
This modification will update
the Policy with the regulatory
guideline – Guidelines on
Stripping / Reconstitution of
Government Securities
(RBI/2009-10/360;
IDMD.DOD.07/11.01.09/2009-
10 dated March 25, 2010).
Page 54 Generate serially numbered deal Generate serially numbered deal slips from the software, No Manual deal slips are
Sl. No. slips from the software / prepare check the particulars, sign it and pass-on to the back office. prepared hence being
6.1.4 serially numbered manual deal deleted.
(iii) slips, check the particulars, sign it
and pass-on to the back office.
Page 57 To ensure periodical verification, To ensure verification, random basis, of the voice recording The gap study by Deloitte has
Sl. No. random basis, of the voice system installed in Dealing Room and Back Office, on daily suggested that the Policy
6.2 (iii) recording system installed in basis and report to RiMV. should mention about the
Dealing Room and Back Office and periodicity of monitoring the
report. voice call record system and
the retention period of the
(v) To retain the voice call record in the system for 5 year voice record.
Sl. No. New clause proposed to be period.
6.2 (v) included New clauses added to address
& (vi) (vi) To ensure regular back up of such voice call record and the above observations.
preserve for easy retrieval.
Page 57 New clause proposed to be (vii) To review and comment on any new activities to be The gap study by Deloitte has
Sl. No. included initiated at Treasury, including new products developed and observed that the Policy
6.2 (vii) provide sign off. should mention the details on
the role of Mid Office in
development of treasury
products.
Page 60 MIS and Periodic Reporting of MIS and Periodic Reporting of Positions The gap study by Deloitte has
Sl. No. 8 Positions suggested that the Policy
should mention the details of
the information of report
Page 8 of 11
Annexure I

S.No.
S Return Periodicity To be S Return Purpose Periodicity Prepared To be generated by the Treasury
No submitted No by submitted to function including detail on
to report content, purpose,
1 Post Sanction Monthly CMD/DMD 1 Post Sanction Report on Monthly TRMV CMD/DMD responsibility for the report.
Reporting of Reporting of treasury
Transactions / Transactions / activities The ‘Return on FRA / IRS’ has
Income and Profit Income and Profit been removed as it is not
of Treasury of Treasury being submitted now.
2 Return on FRAs / Fortnightly RBI 2 Total resources Outstanding Monthly RiMV RBI
IRS invested and regarding
3 Total resources Monthly RBI deployment of deployment of
invested and Short term short term
deployment of resources resources vide
Short term RBI letter
resources D.O.No.3546 /
4 Review of Half yearly Board 03-13-02/93
Investments by dated April 17,
Treasury 1993
5 Classification and Annual Board 3 Review of Income, Capital Half yearly TRMV Board
Valuation of Investments by Market
Investments Treasury Exposure,
6 Approval of CMD As and Board Rating
/ DMD for when Migration,
investments / required Cross Holding,
borrowings in HTM %
instruments not 4 Classification and Annual shifting Annual TRMV Board
defined in the Valuation of of investments
policy Investments to HTM,
7 Investment Policy Annual Board Provision made
- Review (to be due to shifting,
reported to HTM %
RBI) 5 Approval of CMD / Approval of As and TRMV Board
DMD for investments when
investments / required
borrowings in
instruments not
Page 9 of 11
Annexure I

S.No.
defined in the
policy
6 Investment Policy - Policy reviewed Annual RiMV Board to
Review for approve on the
modification, if recommendation
any, on the of RiMC
basis of
regulatory
guidelines, new
product etc.
7 Daily MIS of Monitoring of Daily RiMV Vertical Head of
Treasury treasury RiMV & TRMV.
Operations operations
Page 61 To recommend empanelment of To approve empanelment of brokers / distributors as well as Modification to align with the
/ sl. no. brokers / distributors as well as to to review the existing panel of brokers / distributors. clause 10.1 at Page 62 of the
9.4 (iv) review the existing panel of brokers Policy.
/ distributors.
Page 62 After the introduction of Order After the introduction of Order Matching Negotiated Dealing
/ Matching Negotiated Dealing System, the Bank is not engaging the services of brokers for Mutual Fund has been
Sl. No. System, the Bank is not engaging debt segment and services of brokers / distributors are being removed as the investment is
10.1 the services of brokers for debt engaged for equity only. The empanelment of brokers / being done on Direct basis
segment and services of brokers / distributors should be reviewed on an annual basis and and not through any broker.
distributors are being engaged for Investment Committee shall consider the proposals and Further, the role of
equity and Mutual Fund approve the proposals for empanelment of brokers. TRMV to Investment Committee (IC) is
transactions only. The advise the brokers of the empanelment and ensure conclusion to approve the empanelment
empanelment of brokers / of documentations, as may be required. of brokers.
distributors should be reviewed Besides the above, the new
periodically and Investment insertion also addresses the
Committee shall consider the functional role in concluding
proposals and recommend the the empanelment of brokers.
proposals for empanelment of
brokers to competent authority for
necessary approvals.
Page 10 of 11
Annexure I

S.No.
Page 62 New parameter to be added (vii) The broker entity should not have any ongoing litigation New clause proposed on
/ sl. no. or arbitration with NSE, BSE or SEBI, as on the date of account of the issues faced at
10.2.1 empanelment / annual review. the time of empanelment of
brokers in the past.
Page 61 10.2.2. Mutual Fund segment Deleted No distributors/
/ sl. no. intermediaries are used in the
10.2.2 The distributors for Mutual Fund MF segment hence deleted.
segment only act as intermediaries
for investing money in Mutual
Funds and Bank does not park any
funds with them nor does it pay
any commission / brokerage to
them. In view of this the
parameters for empanelment of
distributors for Mutual Fund
segment shall be as follows:
i) The firm shortlisted, should

already be empanelled with
some banks / FIs/reputed
NBFCs/Insurance
companies.
ii) AMFI registration
iii) Income Tax Permanent

Account Number
Page 63 The review of brokers / distributors The review of brokers / distributors shall be undertaken by the Modification to bring out the
/ sl. no. shall be undertaken by the Mid Mid Office and placed before the Investment Committee for role of Investment Committee
10.3 Office and placed before the approval. as to the review placed before
Investment Committee for it.
deliberation.
Page 11 of 11
For Internal Circulation Only
Annexure II
Investment Policy
FY 2021
Small Industries Development Bank of India

Risk Management Vertical, Mumbai
Investment Policy - FY2021
Table of Contents
Part I ......................................................................................................................................... 4
Master Policy ......................................................................................................................... 4
1. INTRODUCTION ............................................................................................................. 5
2. GUIDING PRINCIPLES .................................................................................................. 5
3. OBJECTIVES .................................................................................................................... 6
4. VALIDITY .......................................................................................................................... 6
5. PRUDENTIAL NORMS FOR INVESTMENTS / BORROWING ............................... 7
5.1. Money Market Operations .............................................................................. 7
5.1.1. Triparty Repo Dealing and Settlement (TREPS) .............................. 7
5.1.2. Reverse Repo............................................................................................... 7
5.1.3. Ready forward transactions (Repo) ..................................................... 7
5.1.4. Deposits ......................................................................................................... 8
5.1.5. Commercial Paper ...................................................................................... 8
5.1.6. Certificate of Deposit ................................................................................ 9
5.2. Investment in Mutual Funds .......................................................................... 9
5.2.1. Investment in ETF ...................................................................................... 9
5.3. Fixed Income Securities ................................................................................ 10
5.3.1. Govt Securities (G-Sec, T-bills and Cash Management Bills) .... 10
5.3.2. Non-Govt Debt Securities ...................................................................... 10
5.4. Equity investments ......................................................................................... 14
5.4.1. Investment in Fully Convertible Debentures (FCDs), Partially
Convertible Debentures (PCDs), Preference Shares and Equity Shares . 14
5.4.2. Overall exposure to Capital Markets ................................................. 15
5.5. Derivatives ......................................................................................................... 18
5.6. Venture Capital................................................................................................. 18
5.7. Any other instruments ................................................................................... 19
5.8. Holding of Instruments in Dematerialised Form ................................... 19
6. RISK AND RETURN DIMENSIONS OF TREASURY .............................................. 20
6.3. Credit Risk .......................................................................................................... 20
6.4. Market Risk ........................................................................................................ 21
6.6. Maturity Profile of Investments................................................................... 21
7. CATEGORISATION OF THE INVESTMENT PORTFOLIO..................................... 21
7.4. Held to Maturity ............................................................................................... 22
7.4.4. Computation of the 25% ceiling.......................................................... 22
7.4.5. Exclusions from the 25% ceiling ......................................................... 22
7.5. Available for Sale and Held for Trading ................................................... 24
1
7.6. Shifting among categories ........................................................................... 24

7.7. Categorisation of certain kinds of equity investment ......................... 25
Part II ...................................................................................................................................... 26
Operational Guidelines..................................................................................................... 26
1. VALUATION OF INVESTMENT PORTFOLIO .......................................................... 27
1.1. Held to Maturity ............................................................................................... 27
1.2. Available for Sale ............................................................................................. 27
1.3. Held for Trading ............................................................................................... 28
1.4. General ................................................................................................................ 28
1.5. Market Value ..................................................................................................... 28
1.6. Valuation of unquoted securities ............................................................... 29
1.6.1. Central Government securities............................................................ 29
1.6.2. State Government securities................................................................ 29
1.6.3. Other 'approved' securities................................................................... 29
1.6.4. Debentures / Bonds ................................................................................. 29
1.6.6. Preference Shares .................................................................................... 30
1.6.7. Equity Shares ............................................................................................. 33
1.6.8. Mutual Funds Units .................................................................................. 35
1.6.9. Commercial Paper/ Certificate of Deposits / Bill Rediscounting
Scheme 35
1.6.10. Venture Capital Funds (VCFs) .............................................................. 35
1.6.11. Recognition of permanent diminution in the value of
investments in banks’ subsidiaries / joint ventures ....................................... 36
1.6.12. Security Receipts / Pass Through Certificates issued by
Reconstruction Company / Securitisation Company ..................................... 37
2. MANAGEMENT OF GOVT DEBT PORTFOLIO....................................................... 38
3. MANAGEMENT OF NON-GOVT SECURITIES PORTFOLIO ................................ 40
3.1. Exposure ceilings and limits ........................................................................ 40
3.2. Investment in Non-Govt Debt Securities ................................................. 40
3.3. Investment in equity....................................................................................... 44
3.4. Portfolio Management Services for equity operations........................ 45
3.5. Monitoring and managing risks in the Non-Govt Debt portfolio...... 45
3.6. General Guidelines .......................................................................................... 46
3.7. Investment in other fixed income money market instruments ....... 47
3.8. Treasury SBU..................................................................................................... 47
4. ACCOUNTING & VALUATION NORMS ................................................................... 47
4.1. Repo Accounting .............................................................................................. 48
2
4.2. Accounting and Valuation of STRIPS ......................................................... 51

5. CROSS HOLDING OF CAPITAL AMONG BANKS / FIs ........................................ 53
6. FUNCTIONAL SEPARATION OF DUTIES ................................................................ 53
6.1. Front Office ........................................................................................................ 53
6.2. Mid Office ........................................................................................................... 54
6.3. Back Office ......................................................................................................... 55
7. EXPOSURE LIMITS ...................................................................................................... 57
8. MIS AND PERIODIC REPORTING OF POSITIONS ............................................... 58
9. INVESTMENT COMMITTEE AND DELEGATION OF POWERS .......................... 59
10. EMPANELMENT OF AND DEALING WITH BROKERS ...................................... 60
11. FOREX OPERATIONS............................................................................................... 63
12. AUDIT / REVIEW AND REPORTING ..................................................................... 64
Annexure – I (RBI Guidelines on SGL Accounts, Bank Receipts, Ready
Forward Contracts) ............................................................................................................ 66
Annexure – II (Format for Appraisal - Subscription to Bonds/Debentures) .... 67
Annexure III (Guidelines for functioning of the Sub-Committee for secondary
equity market operations) .............................................................................................. 70
Annexure IV (Recommended Accounting Methodology for Accounting of
Repo / Reverse Repo transactions) ............................................................................. 71
Annexure V (AD Licence) ................................................................................................ 72
Annexure VI (Sectoral Exposure Caps)....................................................................... 74
3
Part I
Master Policy
4
1. INTRODUCTION
1.1. The Investment Policy elucidates the guiding principles, objectives and
overall framework for undertaking and managing the investment
activities of the Bank. A sound Investment Policy helps in expeditious
decision making and efficient risk management. The last revised
Investment Policy (IP) of the Bank was approved by the Board of Directors
at its meeting held on May 12, 2018.
1.2. The revised Policy document is divided into two parts - Part I mainly
focusing on the broad policy framework, in compliance with various RBI
guidelines issued from time to time, and Part II covering the procedural
and operational guidelines.
1.3. The Risk Management Committee of the Board (RiMC), which is a Board
level committee is responsible for risk management in the Bank. The
RiMC will assist the Board in management of risks and will be responsible
for reviewing the implementation of the risk management framework,
including the Investment Policy. RiMC will recommend the Investment
Policy to the Board for approval.
1.4. The Board of Directors (BoD) is at the apex of Risk Management

framework. The Board will have the overall responsibility for overseeing
risk management, clearly identifying the risks to which the capital of the
Bank is exposed.
2. GUIDING PRINCIPLES
2.1. The guiding principle of the IP would be Safety, Liquidity, Risk and Return.
These aspects should be taken into consideration while taking any
investment decision on behalf of the Bank.
2.2. The primary aim of treasury activities of the Bank would be to protect the
capital of the Bank and not solely aimed at making commercial profits.
2.3. The Treasury Vertical would ensure that the deployment of funds across
investments of various tenures is done without compromising on the ALM
framework.
2.4. Investment operations will be conducted in accordance with sound and

acceptable business practices. The regulatory requirements and
guidelines issued by RBI from time to time shall be complied with.
2.5. The IP may be reviewed comprehensively annually. Any major changes

in the interim may be incorporated by way of an amendment to the Policy
with prior approval of the Board. Any modifications / additions in the
guidelines issued by Reserve Bank of India from time to time should be
implemented immediately.
2.6. Approval for / reporting of all Treasury operations would be carried out as
per the Delegation of Powers in force.
2.7. Treasury officials handling investment operations have to be fully

conversant in the subject of investments and portfolio management. Any
5
gaps in the knowledge will be effectively filled by providing appropriate

training in the desired areas.
2.8. Given the dynamic changing scenario in the loan / advances portfolio and
challenges faced by the Bank in raising cost effective resources, the
investment operations have to remain a source of liquidity and also as a
source for managing mismatches arising out of Asset / Liability
distributions.
2.9. While the IP stipulates measures for managing exposures and to mitigate
various risks, often the investment portfolio is subjected to market,
credit, operational, liquidity and other risks, which requires a close
monitoring and management.
2.10. Risk and return are positively related. Higher the risk, higher the
expected return and vice versa. There should be a clear and conscious
attempt by the officials in Treasury of the Bank to identify, measure,
monitor and control the risks on a continuous basis.
2.11. This Policy lays down the risk-return dimension by specifying the risk
limits for different segments of investment.
3. OBJECTIVES
The main objectives of investment operations based on the guiding principles

can be stated as follows:
3.1. To ensure adequate liquidity for business operations of the Bank at all
times while maximizing the returns.
3.2. To conduct the investment function within the framework of this

document and RBI guidelines in this regard. While undertaking such
transactions the overall Asset Liability Management framework and other
strategies of the Bank should be followed and adhered to.
3.3. To provide the Bank with the maximum return (optimum total return)
possible consistent with the risk tolerance limits placed for various
sources of risks and other regulatory and prudential limits placed on the
portfolio as well as anticipated requirement of funds for operations.
3.4. To actively participate in secondary market operations to provide to the

Bank the maximum return (optimum return) subject to risk control,
regulatory and other prudential limits, market conditions, liquidity, etc.
3.5. To pursue diversification as a risk reduction strategy in all possible ways

to the extent it is envisaged by the Bank.
4. VALIDITY
This document would come into effect from such date and year as approved by
the Board and would remain in force until the next review or till such time as
stipulated by the Board. However, the Policy might be reviewed from time to
time to incorporate the changing market scenario and to reflect the changes in
extant RBI guidelines.
6
5. PRUDENTIAL NORMS FOR INVESTMENTS / BORROWING
The prudential norms in respect of investments in various instruments in which

the Bank is allowed to invest in terms of Board approval and RBI guidelines are
set out in the following paragraphs.
5.1. Money Market Operations
5.1.1. Triparty Repo Dealing and Settlement (TREPS)
Triparty Repo is a repurchase transaction in which the management of

the collateral is delegated by the borrower and lender to a third party
intermediary. CCIL was authorised by RBI, to act as a Triparty Repo
Agent undertaking Central Counter Party (CCP) clearing of Triparty
Repo Transactions under its securities segment with effect from
November 05, 2018. CBLO was converted into Triparty Repo on
November 05, 2018.
i) RBI has authorised the Clearing Corporation of India Limited (CCIL)

to act as a Triparty Repo Agent and also to offer Triparty Repo in
Government Securities as per its Repurchase Transactions (Repo)
(Reserve Bank) Directions, 2018.
ii) CCIL commenced acting as Triparty Repo Agent (TRA) and

undertaking central counterparty (CCP) clearing of triparty repo
transactions under its securities segment with effect from
November 05, 2018. This is being taken up through the Triparty
Repo Order Matching Platform of Clearcorp Dealing Systems (India)
Ltd and is governed by the Triparty Repo (Dealing) Segment
Regulations.
5.1.2. Reverse Repo
i) The Bank is allowed to lend in the money market against notified

securities to notified parties by way of reverse ready forward
transactions vide RBI circular No. FSC.BC.151/24.76.002/97-98
dated December 09, 1997.
ii) The deals have to be settled through SGL account with RBI.
5.1.3. Ready forward transactions (Repo)
i) Bank is allowed to borrow under repo vide RBI circular No. DBS.FID
No. 3/01.02.00/99-2000 dated August 10, 1999 in notified securities
with other notified participants.
ii) Repo transactions have to be settled through SGL account with RBI.
RBI has vide its circular No. IDMD.DOD.05/11.08.38/2009-10 dated
January 08, 2010 introduced repo in corporate bonds. The RBI
guidelines on SGL Account, BR, Ready Forward Deals and the
procedures to be followed by the Bank are given in Annexure - I.
iii) No sale of the repoed securities can be made without having

securities in the portfolio.
7
iv) Bank is allowed to undertake tri-party repo transactions in eligible

securities with eligible participants through RBI authorized Tri-Party
agents vide RBI notification no. RBI/2017-18/42 MRD.DIRD.4/
14.03.024/2017-18 dated August 10,2017 on Tri-Party Repo
(Reserve Bank) Directions,2017.
5.1.4. Deposits
In terms of Section 16 of SIDBI Act effective March 27, 2000 the Bank is
allowed to invest in deposits. In this connection, the following would be
the guiding principles :-
i) Deposits can be placed only with Public and Private Sector

Scheduled Commercial Banks within their respective exposure limits
having business size greater than Rs. One lakh crore after obtaining
quotations. The bank should not be under any regulatory restriction.
ii) Upto two days window is allowed to receive quotations from

maximum number of eligible banks. In case, quotations are not
received within 2 days, interest rates publicly available may be
considered to complete the transaction.
iii) Request for roll over of fixed deposits should not be acceded to.
5.1.5. Commercial Paper
i) Eligible issuers, whose total CP issuance during a calendar year is

`1000 crore or more, shall obtain credit rating for issuance of CPs
from at least two CRAs registered with SEBI and should adopt the
lower of the two ratings. Where both ratings are the same, the
issuance shall be for the lower of the two amounts for which ratings
are obtained.
ii) The minimum investment grade for investment proposed to be

made in CPs would be A1+ assigned by recognized credit rating
agencies e.g. CRISIL, CARE, Fitch, ICRA etc. The Bank will subscribe
to / invest in / purchase CPs issued by entity that have been
authorised by RBI to issue CPs. Further, rolling over of CPs would not
be allowed.
iii) All Over-The-Counter(OTC) trades in CP shall be reported within 15

minutes of the trade to the reporting platform of Clearcorp Dealing
System (India) Ltd.(CDSIL).
iv) Over-The-Counter(OTC) trades in CP shall be settled through the

clearing house of the National Stock Exchange (NSE), i.e., the
National Securities Clearing Corporation Limited (NSCCL), the
clearing house of the Bombay Stock Exchange (BSE), i.e., Indian
Clearing Corporation Limited (ICCL), and the clearing house of the
MCX-Stock Exchange, i.e., MCX-SX Clearing Corporation Limited
(CCL), as per the norms specified by NSCCL, ICCL and CCL from time
to time.
v) The settlement cycle for OTC trades in CP shall either be T+0 or T+1
days.
8
5.1.6. Certificate of Deposit
i) CDs being bulk deposits, in terms of Section 16 of SIDBI Act effective

March 27, 2000, the Bank is allowed to invest in this instrument.
ii) All Over-The-Counter (OTC) trades in CDs shall be reported within

15 minutes of the trade on the reporting platform of Clearcorp
Dealing Systems (India) Ltd. (CDSIL).
iii) All Over-The-Counter (OTC) trades in CDs shall necessarily be

cleared and settled under Delivery Versus Payment-I (DVP I)
mechanism through the authorised clearing houses {National
Securities Clearing Corporation Limited (NSCCL), Indian Clearing
Corporation Limited (ICCL) and MCX Stock Exchange Clearing
Corporation Limited (CCL)} of the stock exchanges.
5.2. Investment in Mutual Funds
i. The bank may invest in different schemes of various Mutual Funds

viz., liquid and liquid plus, income, debt and equity schemes as an
alternative for maintaining adequate liquidity in the short term.
ii. Investment in liquid money market fund portfolio should be based

on transparent criteria laid down by Investment Committee.
iii. Deal slips / tickets shall be signed by the dealers and maintained at
Back Office.
iv. Transaction summary shall be put up to CGM, TRMV at the day end
for sanctions.
v. The MF investments in debt and equity schemes, within the

guidelines approved by Investment Committee, are also permitted
to achieve higher returns under such schemes. Adherence to RBI
guidelines has also to be ensured.
vi. MF investments are to be made within the approved mutual fund-

wise limits and should be within the instrument-wise exposure limits
specified in paragraph 7.1 under Operational Guidelines.
5.2.1. Investment in ETF
i) Investments in ETF should be categorized under Équity Oriented

Mutual Fund’ investments.
ii) The maximum investment in ETF should not exceed `25 crore (Book
Value). The cap can be increased with the approval of ALCO.
iii) Investment and disinvestment shall be on the recommendation of

Secondary Market Committee.
iv) Investment shall be within total amount allocated for Mutual Fund
Schemes and within the cap fixed for each MF house.
9
v) Book Profit limit shall be 15% above the average acquisition price.
Stop Loss limits shall be in terms of the extant Delegation of Powers.
vi) Investment would be reckoned for calculation of the daily turnover

limit fixed for investments in the Secondary Market.
vii) Investment would be reckoned for calculation of Capital Market

Exposure of the Bank.
viii) The performance should be monitored on monthly basis and for

review it is three months.
5.3. Fixed Income Securities
5.3.1. Govt Securities (G-Sec, T-bills and Cash Management Bills)
i) In terms of Section 16 of SIDBI Act effective March 27, 2000 and

the Board approval dated July 15, 2000, the Bank is allowed to
invest in Treasury Bills of various maturities and dated securities
of various tenors issued by the Central and State governments.
ii) The deals have to be settled through SGL account with RBI.
iii) RBI, vide its circular IDMD.DOD.07/11.01.09/2009-10 dated March

25, 2010 introduced Separate Trading of Registered Interest and
Principal of Securities (STRIPS) in Government Securities as well as
laid out the guidelines on stripping / reconstitution of Government
securities. As a market participant, the Bank is allowed to
participate in such trading as well as strip / reconstitute the eligible
Gsecs.
iv) Trades in STRIPS will have to be undertaken in the OTC market and
reported on NDS for clearing and settlement through CCIL.
v) Short sale of STRIPS is not permitted.
vi) Participants shall not sell STRIPS/securities upfront based on the

requests placed by them for stripping/reconstitution. Accordingly,
sale transaction in STRIPS/securities shall be undertaken by
participants only after the securities are stripped/reconstituted
and the same is reflected in the SGL account of the participant.
vii) RBI vide its press release 2013-2014/155 dated July 23, 2013
advised that the Cash Management Bills would have the generic
character of Treasury Bills and their sale will be subject to the
terms and conditions specified in the General Notification No. F.2
(12)-W&M/97 dated March 31, 1998 issued by Government of India
and as amended from time to time.
5.3.2. Non-Govt Debt Securities
10
5.3.2.1. The extant RBI guidelines in respect of Non-Govt debt

securities would be applicable to investment in debt
instruments, both in the primary market (public issue as also
private placement) as well as the secondary market, in the
following categories:
i) debt instruments issued by companies, banks, FIs and State

and Central Government sponsored institutions, SPVs, etc.;
ii) debt instruments/ bond issued by Central or State Public

Sector Undertakings, with or without government guarantee;
iii) units of debt-oriented schemes of Mutual Funds i.e., the

schemes whose major part the corpus is invested in debt
securities;
iv) capital gains bonds and the bonds eligible for priority sector
status;
5.3.2.2. The guidelines, however, do not apply to the following

categories of investments of the Bank:
i) government securities and the units of Gilt Funds;
ii) securities which are in the nature of advance under the extant
prudential norms of RBI;
iii) units of the equity oriented schemes of Mutual Funds, viz., the
schemes wherein a major part of their corpus is invested in
equity shares;
iv) units of the “Balanced Funds”, which invest in debt as well as

equities, provided a major part of the corpus is invested in
equity shares. In case of predominance of investments in debt
securities by the Fund, these guidelines would be attracted,
v) units of venture capital funds and the money market mutual

funds;
vi) commercial paper; and
vii) certificates of deposits
5.3.2.3. Definitions
i) For the purpose of guidelines regarding investment in Non-

Govt Debt securities, the following definitions would apply:
ii) Rated Securities: A debt security will be treated as rated if it

is subjected to a detailed rating exercise by an external rating
agency in India which is registered with SEBI and is carrying a
current or valid rating. The ratings relied upon will be deemed
to be current or valid if :
11
a) the credit rating letter relied upon is not more than one month
old on the date of opening of the issue, and
b) the rating rationale from the rating agency is not more than
one year old on the date of the issue,
c) the rating letter and the rating rationale are a part of the offer
document,
d) in case of secondary market acquisition, the credit rating of

the issue should be in force and confirmed from the monthly
bulletin published by the respective rating agency.
iii) Unrated security: Securities which do not have a current or

valid rating by an external rating agency would be deemed as
unrated securities.
iv) Listed debt securities: Security which is listed on a stock

exchange is listed debt security. If not so listed, it is an
'unlisted' debt security.
v) Non performing investment (NPI): An NPI is one where:
a) In respect of fixed / predetermined income securities,

interest / principal / fixed dividend on preference shares
(including maturity proceeds) is due and remains unpaid
for more than 90 days.
b) The equity shares of a company have been valued at Re.1/-

per company, on account of non-availability of the latest
balance sheet (as per the instructions contained in para 26
of the Annexure to circular DBS.FID.No.C-9/01.02.00/2000-
01 dated November 09, 2000).
c) If any credit facility availed of by the issuer is classified as

NPA in the books of the FI, investment in any of the
securities, including preference shares issued by the same
issuer would also be treated as NPI and vice versa.
However, if only the preference shares are classified as NPI,
the investment in any of the other performing securities
issued by the same issuer may not be classified as NPI and
any performing credit facilities granted to that borrower
need not be treated as NPA 1.
5.3.2.4. Investment in Corporate Debentures /PSU Bonds / Bonds of FIs

/ Banks
1
The preference share are subordinate to bank loans and therefore it is possible that the borrowing company is generating
enough surplus to service the bank loan, but not to pay dividend on the preference shares. In addition, the non-payment of
dividend on preference shares does not expose the borrowing entity to the risk of initiation of bankruptcy proceedings by the
holders of the preference shares. Therefore, it is not necessary to downgrade loans in a situation where the investments in the
preference shares had become non-performing investments. However, the converse is not true. If a loan becomes non-
performing, the investment in preference shares being subordinate to bank loans will have certainly turned non-performing.
12
i) The Bank is allowed to invest in all types of Non Convertible

Debentures (NCD) of Corporate Bodies, bonds of PSUs, banks
/ Financial Institutions rated by recognised external rating
agencies like CRISIL, CARE, ICRA, Fitch, etc. offered in public
issue / private placement basis. Investments in such
instruments may also be undertaken through secondary
market.
ii) The minimum investment grade rating for these will be 'AA' of
CRISIL or equivalent thereof indicating High Safety. However,
investments in securities having ratings upto two notches
below ‘AA’ (i.e. AA- and A+) may only be undertaken with the
due approval of CMD/ DMD subject to reporting to the Board..
iii) Effective from April 01, 2014, all the above OTC traded
instruments in secondary market shall be reported within 15
minutes of the trade on any of the stock exchanges (NSE, BSE
and MCX-SX). These trades may be cleared and settled though
any of the clearing corporations (NSCCL, ICCL and MCX-SX
CCL).Investment in Subordinated Debt, Upper Tier II and
Innovative Perpetual Debt Instruments of Banks,
Subordinated debt instruments issued by Commercial Banks
for augmenting their Tier II Capital, are fully paid-up,
unsecured, subordinated to the claims of other creditors, free
of restrictive clauses and are not redeemable at the initiative
of the holder or without the consent of RBI. Upper Tier II
instruments are fully paid-up, unsecured, free of restrictive
clauses and are not redeemable at the initiative of the holder
or without the prior approval of RBI. The claims of the
investors in Upper Tier II instruments are superior to the
claims of investors in instruments eligible for inclusion in Tier
I capital and subordinate to the claims of all other creditors.
Innovative Perpetual Debt Instruments, which qualify for
inclusion as Tier I capital of the issuing banks, are perpetual.
The claims of the investors in Innovative Perpetual Debt
Instruments are superior to the claims of investors in equity
shares and subordinated to the claims of all other creditors.
Both Upper Tier II and Innovative Perpetual Debt instruments
cannot have ‘put option’ though these bonds can be issued
with ‘call option’. The return on these capital instruments is
usually finer than instruments of comparable maturity
available in the market. The bank may invest in such bonds
having minimum credit rating of ‘AA’ by CRISIL or equivalent
thereof indicating high safety. However, investments in
securities having ratings upto two notches below ‘AA’ (i.e. AA-
and A+) may only be undertaken with the due approval of
CMD/ DMD subject to reporting to the Board.
5.3.2.5. Investment in Subordinated Debt Instruments of NBFC-MFIs
As a part of the Bank’s promotional role and enhancing financial

inclusion in the country, SIDBI has been assisting the NBFC-MFIs. In
order to augment the capital of such institutions the Bank may
subscribe to the subordinated debt instruments having the minimum
13
rating of BBB or equivalent. While such investments would be

reckoned for exposure/disclosure norms, consolidated valuation, the
same would not be reckoned for duration, VaR analysis etc.
5.3.2.6. Investment under Risk Capital products
Under Risk Capital products, SIDBI provides equity / quasi equity and
mezzanine financial products for assisting MSMEs. SIDBI has been
subscribing to the equity / mezzanine instruments issued by MSMEs.
Generally such investments form part of project finance and
accordingly no rating of such instruments is insisted upon. Endeavor
should be made to make the Bank’s direct investments under Risk
Capital products in various MSME units sufficiently granular and
diverse so as to reduce concentration risk and facilitate judicious
management of the associated credit risk.
5.3.2.7. Investment in Zero Coupon Bonds (ZCBs)
The Bank is allowed to invest in ZCBs provided the issuer builds up

sinking fund for all accrued interest and keeps it invested in liquid
investments / securities (Government bonds).
5.3.2.8. Investment in any financial sector or financial sector

infrastructure company
SIDBI should obtain prior approval from RBI for any investment in any
financial sector or financial sector infrastructure company in future.
Accordingly, any such investment in future will be made only with the
prior approval of RBI. (Ref. RBI letter DBOD.No.FID.17137/03/01
/011/2008-09 dated April 7, 2010).
5.4. Equity investments
5.4.1. Investment in Fully Convertible Debentures (FCDs), Partially

Convertible Debentures (PCDs), Preference Shares and Equity Shares
i) The investments in FCDs, PCDs, Preference Shares and Initial

Public Offer / Follow-up Public Offer of equity shares will be on a
case to case basis after considering various criteria like past
profitability, debt-equity ratio, coverage ratios, industry
comparison, future projections, market reports, etc.
ii) Investments in such instruments may also be undertaken through

secondary market for realizing capital gains. Treasury can, thus,
undertake proprietary trading in equity shares through secondary
market.
iii) Such secondary market trading in equity shares should not exceed
5% of the net-worth of the Bank as on March 31 of the previous
year. Detailed guidelines for secondary market operations are
given in Annexure III.
14
5.4.2. Overall exposure to Capital Markets
The aggregate exposure of the Bank to the capital markets in all forms (both
fund based and non-fund based) should not exceed 40% of its net worth, as
on March 31 of the previous year. Within this overall ceiling, its direct
investment in shares, convertible bonds / debentures, units of equity-
oriented mutual funds and all exposures to Venture Capital Funds (VCFs)
(both registered and un-registered) should not exceed 20 per cent of its net
worth (RBI letter No.DO.RPCD.Co.Plan.1466/04.09.48/2009-10 dated August
04,2009). Investments in equity of financial services companies should not
exceed 10% of its paid up capital and reserves, and its equity stake in
subsidiaries, financial services companies, financial institutions, stocks and
other exchanges put together should not exceed 20% of its paid up capital
and reserves. However, SIDBI is permitted to have direct Capital Market
Exposure (CME) of up to 40% of its net worth as on March 31 of the previous
year as long as the MSME (Risk Capital) Fund remains in existence. The
investment in any financial services company will be included in the SIDBI’s
capital market exposure once the investment is listed on a Stock Exchange
(this is to be read in conjunction with clause 5.6 requiring RBI permission for
investment in financial sector companies). The risk weights on capital
market exposures including those exempted from CME norms are
summarized in the following table.
Investments Capital Market Exposures

CME Norms Exempted from CME norms Non Exempted from CME
Applicability norms
Categories of HTM Non HTM Non HTM Category
Investments Category Category
Associated Specific Risk Specific Risk + Specific Risk + General
Risks General Market Market Risk
Risk
Risk Weights 125% (175% 125% + 100% 125% + 100% for CME upto
for (175%+100% for 20% [175%(for specific
investments investments in risk)+100% (for General
in VCF) VCF) Market risk) for investments
in VCFs for CME upto 20%]
175% + 100% for CME
above 20% [200%(for
specific risk)+100% (for
General Market risk) for
investments in VCFs for CME
between 20% and 30%]
225%(for specific
risk)+100% (for General
Market risk) for investments
in VCFs for CME between
30% and 40%
Reference:
i) RBI letter DBOD.FID.No.12430 /03.01.11 / 2010-11 dated February 8, 2011,
ii) RPCD.CO.Plan.2305/04.09.48/2010-11 dated August 20, 2010,
iii) DBOD. No. FID. 17137/ 03.01.011/ 2008-09 dated April 7, 2010 and
iv) DBOD.FID.No.10481/03.01.11/2010-11 dated January 18, 2012
v) DBOD.FID.No.9539/03.01.11/2010-11 dated January 02, 2013).
15
5.4.2.1. Components of Capital Market Exposure
The total capital market exposures would include both the direct
exposures and indirect exposures of the Bank. The aggregate
exposure (both fund and non-fund based) to capital markets in all
forms would include the following:
i) Direct investment in equity shares, convertible bonds, convertible

debentures and units of equity-oriented mutual funds the corpus of
which is not exclusively invested in corporate debt;
ii) Advances where shares or convertible bonds or convertible

debentures or units of equity oriented mutual funds are taken as
primary security;
iii) Advances to the extent secured by the collateral security of shares

or convertible bonds or convertible debentures or units of equity
oriented mutual funds i.e. where the primary security other than
shares/convertible bonds/convertible debentures/units of equity
oriented mutual funds does not fully cover the advances;
iv) Loans sanctioned to corporates against the security of shares / bonds

/ debentures or other securities or on clean basis for meeting
promoter’s contribution to the equity of new companies in
anticipation of raising resources;
v) Bridge loans to companies against expected equity flows/issues;
vi) All exposures to Venture Capital Funds, both registered and

unregistered.
5.4.2.2. Items excluded from Capital Market Exposure
The following items would be excluded from the aggregate exposure

ceiling as well as direct investment exposure ceiling (wherever
applicable):
i) Tier I and Tier II debt instruments issued by other banks;
ii) Investment in Certificate of Deposits (CDs) of other banks and

Commercial Papers;
iii) Preference Shares;
iv) Investment in non-convertible debentures and non-convertible

bonds;
v) Units of Mutual Funds under schemes where the corpus is invested

exclusively in debt instruments;
vi) Preference shares and shares acquired by SIDBI as a result of

conversion of debt/overdue interest into equity under Corporate
Debt Restructuring (CDR) mechanism;
16
vii) Investment in any financial sector/financial sector infrastructure

company so long as it is not listed on a Stock Exchange. (This clause
to be read in conjunction with clause 5.6 requiring RBI permission for
investment in financial sector companies);
viii) Equity investment in subsidiaries, joint ventures (a joint venture

is one in which SIDBI, along with its subsidiaries, holds more than
25% of the equity), State Financial Corporations (SFCs),
institutions forming crucial financial infrastructure for
development of MSMEs in India viz., Acuité Ratings & Research
Limited (erstwhile SMERA Ratings Limited), India SME Technology
Services Ltd. (ISTSL), India SME Asset Reconstruction Company
Ltd. (ISARC), North Eastern Development Finance Corporation Ltd
(NEDFi), Receivables Exchange of India Ltd. (RXIL) etc. However,
after listing, the exposures in institutions forming crucial financial
infrastructure for development of MSMEs in India, in excess of the
original investment (i.e. prior to listing) would form part of the
Capital Market Exposure (if they are neither subsidiaries nor joint
ventures).SIDBI would be guided by Paragraph 2.3.5 (Items
excluded from Capital Market Exposure) of RBI Master Circular on
Exposure Norms for Scheduled Commercial Banks.
5.4.2.3. Definition of Net Worth
Net worth would comprise of Paid-up capital plus Free Reserves

including Share Premium but excluding Revaluation Reserves, plus
Investment Fluctuation Reserve and credit balance in Profit & Loss
account, less debit balance in Profit and Loss account, Accumulated
Losses and Intangible Assets.No general or specific provisions should
be included in computation of net worth. Infusion of capital through
equity shares, either through domestic issues or overseas floats after
the published balance sheet date, may also be taken into account for
determining the ceiling on exposure to capital market.
5.4.2.4. While investing in equity shares etc., whose prices are subject
to volatility, the Bank shall keep in view the following guidelines:
i) the ceiling for investment in shares, etc., prescribed above is the

maximum permissible ceiling,
ii) bank shall make investment in SEBI/ AMFI approved/ registered

mutual funds with good track record. Such investment should be
in specific schemes of Mutual Funds and not by way of placement
of funds with Mutual Funds for investment in the capital market
on the Bank's behalf.
iii) Underwriting commitments taken up by the Bank in respect of

primary issues through book building route would also be within
the above overall ceiling.
5.4.2.5. Computation of Capital Market Exposure
For computing the exposure to the capital markets, loans/advances

sanctioned and guarantees issued for capital market operations
would be reckoned with reference to the sanctioned limits or
17
outstanding, whichever is higher. However, in the case of fully drawn

term loans, where there is no scope for further drawal of any portion
of the sanctioned limit, SIDBI would reckon the outstanding as the
exposure. Also, direct investment in shares, convertible bonds,
convertible debentures and units of equity-oriented mutual funds
would be calculated at their cost price.
5.5. Derivatives
i) Bank is allowed to transact in Interest Rate Derivatives (IRD) as a

participant user either over-the-counter (OTC) derivatives or on the
stock exchanges, either by seeking membership of the F&O segment
of NSE/BSE or through approved F&O members, in terms of RBI circular
No DBOD.No.BP.BC.86/ 21.04.157/2006-07 dated April 20, 2007.
ii) The IRD deals will have to comply with the regulatory norms laid down
by SEBI and respective stock exchanges.
iii) Settlement, eligible underlying securities, hedge criteria and hedge

effectiveness shall be in terms of RBI/SEBI guidelines.
iv) The existing RBI norms regarding use of brokers shall be observed.
v) IRD to be undertaken within the parameters laid down by the Board

subject to RBI guidelines.
vi) The interest rate derivatives which the Bank is allowed to transact in
are different types of plain vanilla Forward Rate Agreements and
Interest Rate Swaps.
vii) Swaps having explicit / implicit option features such as

caps/floors/collars are not permitted by RBI for the present.
viii) The benchmark rates for FRA / IRS as specified by RBI would be any
domestic money or debt market rupee interest rate, or, rupee interest
rate implied in the forward exchange rates, as permitted by RBI in
respect of MIFOR swaps (paragraph 3 of DBOD circular no.
DBOD.BP.BC.53/21.04. 157/2005-06 dated December 28, 2005)
5.6. Venture Capital
(i) The Bank’s investment in Venture Capital Funds (VCFs) will be subject
to the prudential guidelines issued by RBI vide its circular Master
Circular No. DBR.FID.FIC.No.4/ 01.02.00/2015-16 on Exposure Norms
for FIs dated July 01, 2015. Investments in VCFs in the form of
equity/units etc. will be subjected to the limits stipulated vide para 3
of Master circular No. DBR No.FSD.BC.19/ 24.01.001/ 2015-16 on Para
Banking Activities dated July 1, 2015 in terms of which the investment
in a subsidiary company, financial services company, financial
institution, stock and other exchanges should not exceed 10 per cent
of the Bank’s paid-up share capital and reserves and the investments
in all such companies, financial institutions, stock and other exchanges
put together should not exceed 20 per cent of the bank’s paid-up share
capital and reserves. In terms of RBI letter
DBOD.FID.No.9539/03.01.11/2012-13 dated January 02, 2013 SIDBI
18
can invest upto 25% of the corpus of the VCF and 30% in respect of
VCFs managed by its subsidiaries.
(ii) SIDBI investment in any Venture Capital Fund may be reckoned as

MSME dedicated, as long as the fund invests at least twice the
contribution made by SIDBI or 50% of its fund, whichever is more, to
MSMEs. The risk weights on capital market exposures are summarized
in the following table:
Fund Investment in Venture Capital Fund

CME Norms Non Exempted from CME norms
Applicability
Categories of HTM Category (for Non HTM Category(after 3 years)
Investments initial 3 years)
Associated Risks Specific Risk Specific Risk + General Market Risk
Risk Weights 175% (for specific 175%(for specific risk)+100% (for

risk) General Market risk) for
investments in VCFs for CME upto
20%
200%(for specific risk)+100% (for

between 20% and 30%
225%(for specific risk)+100% (for

between 30% and 40%
5.7. Any other instruments
In terms of this Policy CMD / DMD can approve investments / borrowings in

any other instrument not enumerated above or as and when introduced in
the market together with its exposure limit. Investments in instruments not
outlined in the policy and authorised by CMD / DMD shall be subject to
ratification by the Board along with necessary modification to the
Investment Policy.
5.8. Holding of Instruments in Dematerialised Form
In terms of para 2.5.12 of RBI Master circular dated July 01, 2015 on
prudential norms for classification, valuation and operation of investment
portfolio by FIs, FIs are required to make fresh investment and hold
Commercial Paper, bonds and debentures, privately placed or otherwise
and equity instruments only in dematerialized form. The CDs are to be
issued in demat form vide RBI latest Master Circular-Guidelines for Issue of
Certificate of Deposit.
19
6. RISK AND RETURN DIMENSIONS OF TREASURY
6.1. The various risks that affect the returns in the investment operations of
Treasury are:
i) Liquidity Risk
ii) Interest Rate Risk
iii) Yield Curve Risk
iv) Credit and Default Risk
v) Options Risk
vi) Operational Risk
6.2. As enumerated in the guiding principles, there should be a conscious

attempt to identify, measure, monitor and control the above risks in the
investment functions of Treasury.
6.3. Credit Risk
i) Credit Risk relates to the uncertainty in cash flows arising out of

investment asset.
ii) The risk is to be contained by strict adherence to prudential norms,

regular monitoring of credit status of the issuer and timely action in
case of default.
iii) The portfolio risk is to be managed within the tolerance levels by a

prudent mix of securities signifying - diversified instruments; different
maturity segments; an equitable spread over public and private
sectors; and tradability.
iv) The Risk is to be further controlled by strict adherence to Bank’s

prudential norms and exposure limits specified in this Policy.
v) Active dealing in all categories of securities in secondary market to

switchover to securities of better quality, book profit / cut loss in case
of appreciation/depreciation are some of important ways to manage
the risk.
vi) As part of monitoring of investment assets, the Mid Office should report
to the Management immediately, in the event of:
a. Change in the credit rating of the issuer with negative implications.
b. Any market report on default of the issuer in discharging other

obligations, and,
c. Statutory/regulatory changes affecting the specific investment.
vii) Report on the above developments should be made to the appropriate

authority [i.e. having delegated powers to sanction the investment] and
20
should contain recommendations as to the continuance or disposal of

the investment.
viii) The rating migration exercise of all the non- Govt Debt investments
having residual maturity of over one year should be undertaken and
suitably reflected in the half yearly investment reviews submitted to
Board.
6.4. Market Risk
i) Investments, particularly in fixed income securities are highly sensitive

to interest rate movement. A fall in the price of a security on account
of rising interest rates depreciates the value of investment asset.
ii) Treasury should make use of various tools such as duration, modified
duration and VaR to mitigate the market risks in terms of ALM Policy
laid down by the Bank.
6.5. There are a number of methods available for computing yield measures
for fixed income securities. A few of them are Current Yield (CY), Yield-to-
Maturity (YTM) and their variants. The CY method has serious limitations as
a return measure as it considers only the coupon income and does not
consider the interest on interest (reinvestment income) and price
appreciation or depreciation. Unless the holding period is extremely short
and expected price change is zero, CY is not an appropriate measure of
return. The concept of YTM is widely used in the market as it considers all
the aspects of returns from a security. The YTM concept rests on two
important assumptions:
i) The security is held till maturity, and
ii) The reinvestment of cash flows from the security takes place at YTM.
6.6. Maturity Profile of Investments
One of the main objectives of the Investment Policy is to ensure adequate

liquidity for business operations of the Bank at all times while ensuing safety
of investments and maximizing the returns. To ensure adequate funds for
business operations, it is proposed to invest a minimum of 30% of surplus
funds in short term instruments.
7. CATEGORISATION OF THE INVESTMENT PORTFOLIO
7.1. As per RBI guidelines, entire Govt Debt and Non-Govt Debt securities
investment portfolio are categorised into three categories:
i) Held To Maturity (HTM)
ii) Available for Sale(AFS)
iii) Held For Trading (HFT)
7.2. The securities acquired with the intention to hold them till maturity will be
classified under Held to Maturity. The securities acquired with the intention
to trade by taking advantage of the short-term price/ interest rate
21
movements etc. will be classified under Held for Trading. The securities,
which do not fall within the above two categories, will be classified under
Available for Sale.
7.3. Categorisation of investment will be decided at the time of acquisition and

the decision would be recorded on the investment proposal.
7.4. Held to Maturity
7.4.1. Only debt securities will be classified under the HTM category. The
only exceptions permitted are the equity held in subsidiaries and joint
ventures, investments in preference shares in the nature of advance,
non-project related redeemable shares and the investments in units
of close ended schemes of mutual funds only if such units are not
listed on the stock exchanges. As listed units of close ended schemes
can be sold off in the market at any point of time, they should be
placed in AFS or HFT category.
7.4.2. The investments included under HTM should not exceed 25% of the
Bank's total investments. The Bank may include at its discretion
under HTM category securities less than 25% of total investment.
7.4.3. Financial Institution's aggregate investment in Tier II bonds issued by

other FIs / banks shall be permitted up to 10 per cent of the total
capital of the investing Financial Institution. The total capital for this
purpose will be the same as that reckoned for the purpose of capital
adequacy.
7.4.4. Computation of the 25% ceiling
For computing the ceiling of 25% for HTM category, the following types
of investments should be excluded from the total investments and 25%
of the balance amount would constitute the ceiling:
i) Equity held in subsidiaries / Joint Ventures;
ii) Bonds / debentures and preference shares meeting the

prescribed criteria and treated in the nature of advance;
iii) Other investments (equity shares) in the nature of advance

which may be held in the AFS category.
7.4.5. Exclusions from the 25% ceiling
The following investments will be classified under HTM but will not be
counted for the purpose of ceiling of 25% specified for this category:
i) Investment in subsidiaries and joint ventures -A joint venture would be

one in which the Bank, along with the holdings by its subsidiaries, holds
more than 25% of equity capital pursuant to a Joint Venture agreement
duly entered into between / amongst the Bank and the joint venture
partner(s) for furtherance of a commercial objective. Besides, the
companies floated by the Bank and in which the Bank (along with the
holdings by its subsidiaries) holds more than 25 per cent of the equity
22
share capital, would also be classified as a Joint Venture. A distinction

ought to be made between the transfer of an investment and
transmission of an investment to the Bank on account of the operation
of a statute. Thus, if the shares of a corporate entity were transmitted
to the Bank on account of operation of a statute, and were not acquired
of its own volition, such entities could be treated as a Joint Venture and
the shares held therein classified and valued accordingly, as per the
extant RBI norms.
a) Only such equity holdings, as also the equity held in subsidiaries,

should be placed in the HTM category – and not where the Bank,
along with its subsidiaries, acquires equity in excess of 25% on
account of conversion of loan, venture capital assistance, etc.
ii) Investment in debentures / bonds, which are deemed to be in the nature

of an advance
a) Debentures / bonds will be treated in the nature of an advance

when the debenture / bond is issued as part of the proposal for
project finance and the tenure of the debenture / bond is for a
period of three years and above.
AND
The Bank has a significant stake i.e. 10% or more in the issue,
AND
The issue is part of a private placement i.e. the borrower has

approached the Bank and not part of a public issue where the Bank
has subscribed in response to an invitation.
b) The debentures / bonds deemed to be in the nature of advance will

be subject to the usual prudential norms applicable to advances.
iii) Preference shares -The preference shares, other than convertible

preference shares, on account of their definite maturity period, may be
included in the HTM category, regardless of their period of maturity,
subject to the following:
a) The preference shares, other than convertible preference shares,

acquired as a part of project financing and meeting the extent
criteria for treating the bonds and debenture as 'in the nature of
advance', should be treated in the nature of advance. Such
preference shares would also not be counted for the purpose of
the ceiling of 25% on the investment in the HTM category.
b) The preference shares acquired by conversion of loans / debenture

which qualify as in the nature of advance as per the extent criteria
should also be treated in the nature of advance and categorized
and valued accordingly. Such preference shares would also not be
counted for the purpose of the ceiling of 25% on the investments
in the HTM category.
23
c) All other preference shares, if kept in the HTM category, should be

reckoned within the ceiling of 25% for the investments in the HTM
category. Such shares should be valued at the acquisition cost
unless acquired at a premium, in which case they should be valued
at the amortised cost. Any diminution, other than temporary, in
value of these shares should be determined and provided for each
investment individually and should not be set off against
appreciation in other preference shares.
7.4.6. Profit on sale of investments in this category should be first taken to

the Profit & Loss Account and thereafter be appropriated to the 'Capital
Reserve Account'. Loss on sale will be recognised in Profit & Loss
Account.
7.5. Available for Sale and Held for Trading
7.5.1. The Bank will have the freedom to decide on the extent of holdings
under Available for Sale and Held for Trading categories after
considering various aspects such as basis of intent, trading
strategies, risk management capabilities, tax planning, manpower
skills, capital position, etc.
7.5.2. The investments classified under HFT category would be those from
which the Bank expects to make a gain by the movements in the
interest rates / market rates and are to be sold within 90 days.
However, if the securities could not be sold 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 AFS category subject to depreciation, if any,
applicable on the date of transfer and should be done at acquisition
cost / book value / market value whichever is less with the approval
of the Investment Committee or ALCO or Board of Directors.
7.5.3. Profit or Loss on sale of investments in both the categories will be

taken to the Profit & Loss Account.
7.6. Shifting among categories
7.6.1. Shifting of investments to / from HTM category shall be done with

the approval of the Board of Directors once a year. Such shifting will
normally be allowed at the beginning of the accounting year and no
further shifting to / from this category will be made during the
remaining part of that accounting year.
7.6.2. Shifting of investments from AFS category to HFT category should

be made with the approval of Investment Committee or ALCO or
Board of Directors. In case of exigencies, such shifting may be done
with the approval of the Chairman & Managing Director / Chairman
of ALCO, subject to ratification by Board of Directors/ ALCO.
7.6.3. Shifting of investments from HFT category to AFS category is

generally not allowed. However, it will be permitted only under
exceptional circumstances as mentioned above subject to
depreciation, if any, applicable on the date of transfer, with the
24
approval of the Investment Committee or ALCO or Board of

Directors.
7.6.4. Transfer of scrips from one category to another, under all

circumstances should be done at the acquisition cost / book value /
market value on the date of transfer, whichever is the least, and the
depreciation, if any, on such transfer should be fully provided for.
7.6.5. (i) If the value of sales and transfers of securities to/from HTM
category exceeds 5 per cent of the book value of investments held
in HTM category at the beginning of the year, SIDBI should disclose
the market value of the investments held in the HTM category and
indicate the excess of book value over market value for which
provision is not made. This disclosure is required to be made in
'Notes to Accounts' in SIDBI's audited Annual Financial Statements.
However, the one-time transfer of securities to/from HTM category
with the approval of Board of Directors permitted to be undertaken
at the beginning of the accounting year and sales to the Reserve
Bank of India under pre-announced Open Market Operations (OMO)
auctions will be excluded from the 5 per cent cap prescribed above.
(ii) The shifting of investments in VC funds from HTM to AFS

category, as prescribed under RBI circular
DBOD.FID.FIC.No.9/01.02.00/2010-11 dated December 01, 2010 on
“Prudential Guidelines – Bank’s Investment in Venture Capital Funds
(VCFs)” need not be taken into account for computing the cap of
5%. (Ref: RBI circular DBOD.FID.FIC.5/01.02.00/ 2010-11 dated
August 18, 2010 and RBI letter DBOD.FID.No 10561/03.01.11/2010-
11 dated January 6, 2011).
7.7. Categorisation of certain kinds of equity investment
7.7.1. Equity investments in subsidiaries, joint ventures (a joint venture is

one in which SIDBI, along with its subsidiaries, holds more than 25%
of the equity) and State Financial Corporations (SFCs) are to be
classified under the HTM category.
7.7.2. Equity investments in the undernoted categories are to be classified

under non HTM:
i) Equity investments in institutions (other than JVs) which form

crucial financial infrastructure for development of MSMEs
ii) Preference shares
iii) Shares acquired by banks as a result of conversion of debt /

overdue interest into equity under CDR mechanism
25
Part II
Operational Guidelines
26
1. VALUATION OF INVESTMENT PORTFOLIO
1.1. Held to Maturity
1.1.1. Investments classified under Held to Maturity category need not be

marked to market and will be carried at the acquisition cost unless it
is more than face value in which case the premium should be
amortised over the remaining period of maturity. The amortization
will be done as per straight line method. In respect of investments
acquired at discount to the face value, investments will be carried at
the acquisition cost.
1.1.2. Any diminution, other than temporary, in the value of investment of

the Bank in subsidiaries / joint ventures, which are included under
Held to Maturity category, should be recognised and provided for.
Such diminution should be determined and provided for each
investment individually.
1.1.3. The need to determine whether impairment has occurred is a

continuous process and the need for such determination will arise in
the following circumstances:
(a) On the happening of an event which suggests that impairment

has occurred. This would include:
i. the company has defaulted in repayment of its debt
obligations.
ii. the loan amount of the company with any bank / FI has
been restructured.
iii. the credit rating of the company has been downgraded to
below investment grade.
(b) When the company has incurred losses for a continuous period
of three years and the networth has consequently been
reduced by 25% or more.
(c) In the case of new company or a new project when the
originally projected date of achieving the break-even point has
been extended i.e., the company or the project has not
achieved break-even within the gestation period as originally
envisaged.
1.1.4 When the need to determine whether impairment has occurred arises
in respect of a subsidiary, joint venture or a material investment, the
FI should obtain a valuation of the investment by a reputed / qualified
valuer and make provision for the impairment, if any.
1.2. Available for Sale
1.2.1. The individual scrips in the Available for Sale category will be marked
to market at the year-end or at more frequent intervals. While the net
depreciation under each classification referred below should be
recognized and fully provided for, the net appreciation under each of
these classifications should be ignored. Net depreciation to be
provided for in any one classification should not be reduced on
account of net appreciation in any other classification. The book value
27
of individual securities would not undergo any change after the

revaluation.
1.2.2. The classification of investment will be done as (i) Government

securities, (ii) Other approved securities, (iii) Shares, (iv) Debentures
and Bonds, (v) Subsidiaries / joint ventures, and (vi) Others (CP,
Mutual Fund Units, etc.).
1.2.3. The provisions required to be created on account of depreciation in

the Available for Sale category in any year should be debited to the
Profit & Loss Account and an equivalent amount (net of tax benefit, if
any, and net of consequent reduction in the transfer to statutory
reserve) or the balance available in the Investment Fluctuation
Reserve Account, whichever is less, shall be transferred from the
Investment Fluctuation Reserve Account to the Profit & Loss Account.
In the event provisions created on account of depreciation in the
Available for Sale category are found to be in excess of the required
amount in any year, the excess should be credited to the Profit & Loss
Account and an equivalent amount (net of taxes, if any, and net of
transfer to Statutory Reserves if applicable to such excess provision)
should be appropriated to the Investment Fluctuation Reserve
Account to be utilised to meet future depreciation requirement for
Investments in this category. The amounts debited to the Profit &
Loss Account for provision and the amount credited to the Profit &
Loss Account for reversal of excess provision should be debited and
credited respectively under the head 'Expenditure - Provisions &
Contingencies'. The amounts appropriated from the Profit & Loss
Account and the amount transferred from the Investment Fluctuation
Reserve to the Profit & Loss Account should be shown as ‘below the
line’ items after determining the profit for the year.
1.3. Held for Trading
The individual scrips in the Held for Trading category will be revalued at
monthly basis or at more frequent intervals and the net appreciation/
depreciation under each of the six classifications referred to in para 1.2.2
will be recognised in the income account. The book value of the individual
scrip will change with the revaluation.
1.4. General
In respect of securities included in any of the three categories where

interest / principal is in arrears, income on the securities should not be
reckoned and appropriate provisions should be made for the depreciation
in the value of the investment. The depreciation requirement in respect of
these non-performing securities should not be set-off against the
appreciation in respect of other performing securities.
1.5. Market Value
The 'market value' for the purpose of periodical valuation of investments

included in the Available of Sale and the Held for Trading categories would
be the market price of the scrip as available from the trades / quotes on the
stock exchanges, price of SGL account transaction, price list of RBI, or prices
28
declared periodically by Primary Dealers Association of India (PDAI) jointly

with the Financial Benchmark India Pvt Ltd (FBIL).
1.6. Valuation of unquoted securities
1.6.1. Central Government securities
i) The unquoted Central Government securities should be valued on

the basis of the prices / YTM rates put out by the PDAI / FBIL at
periodical intervals. Treasury Bills should be valued at carrying
costs.
ii) For the limited purpose of valuation, all special securities issued
by the Government of India, directly to the beneficiary entities,
which do not carry SLR status, may be valued at a spread of 25
bps above the corresponding yield on Government of India
securities. At present, such special securities comprise: Oil Bonds,
Fertiliser Bonds, bonds issued to Unit Trust of India, IFCI Ltd., Food
Corporation of India, Industrial Investment Bank of India Ltd., the
erstwhile Industrial Development Bank of India and the erstwhile
Shipping Development Finance Corporation.
1.6.2. State Government securities
The unquoted State Government securities should be valued applying

the YTM method by marking it up by 25 basis points above the yields of
the Central Government securities of equivalent maturity put out by
PDAI / FBIL periodically.
1.6.3. Other 'approved' securities
The Other 'approved' Securities will be valued applying the YTM method
by marking it up by 25 basis points above the yields of the Central
Government securities of equivalent maturity put out by PDAI / FBIL
periodically.
1.6.4. Debentures / Bonds
All debentures / bonds other than debentures / bonds which are in the
nature of advance should be valued on the YTM basis. Such debentures
may be of different companies having different ratings. These will be
valued with appropriate mark-up over the YTM rates for Central
Government securities as put out by PDAI / FBIL periodically.
1.6.5. The mark-up will be graded according to the ratings assigned to the
debentures / bonds by the rating agencies subject to the following:
a) The rate used for the YTM for rated debentures/bonds should be at
least 50 basis points above the rate applicable to a Government of
India loan of equal maturity.
b) The rate used for the YTM for unrated debentures / bonds should
not be less than the rate applicable to rated debentures/bonds of
equivalent maturity. The mark-up for the unrated
29
debentures/bonds should appropriately reflect the credit risk borne

by the Bank.
c) Where interest / principal on the debenture/bond is in arrears, the

provision should be made for the debentures/bonds as in the case
of debentures/bonds treated as advances. The
depreciation/provision requirement towards debentures where the
interest is in arrears or principal is not paid as per due date, shall
not be allowed to be set-off against appreciation against other
debentures / bonds.
1.6.5.1. Where the debenture / bond is quoted and there have been
transactions within 15 days prior to the valuation date, the
value adopted should not be higher than the rate at which the
transaction is recorded on the stock exchange.
1.6.6. Preference Shares
1.6.6.1. Preference shares not in the nature of advance
1.6.6.1.1. Tax-free preference shares
The guidelines framed by FBIL for valuation of tax-free bonds

should be followed for valuation of unquoted tax-free preference
shares, other than those kept in the HTM category, as per the
following procedure:
i. Gross up the nominal (tax-free) dividend rate on the

preference shares by the marginal income tax rate of the Bank
– which might change from year-to-year – to get the cum-tax
dividend rate;
ii. Find the YTM of the GoI security of the equal residual maturity
from the rates declared by FBIL;
iii. Add the applicable credit spread / risk premium (as per the
rating of the preference shares) specified by FBIL for that risk
category, to the YTM of the GoI security arrived at step (ii)
above.
iv. In case of unrated preference shares, the credit spread / risk

premium to be added to the YTM of the GoI security arrived at
(ii) above, should be determined in the following manner:
a) In case the company issuing unrated preference shares has

any other rated instruments which are outstanding, then a
rating one full-notch below that rating should be arrived at
(for instance, for a ‘AAA’ rating, only ‘AA’ rating should be
reckoned). In case more than one rated instrument issued
by the company is outstanding, then the rating of that
instrument which has been assigned the rating most
recently, should be reckoned. The risk spread
corresponding to such rating, as announced by FBIL, would
be the spread to be added to the YTM of the GoI security.
30
b) In case, no other instrument of the company issuing the

preference shares has been rated and is outstanding, then
a credit spread not less than the spread applicable to a
bond of minimum investment grade, i.e., a ‘BBB’ rated
bond, would be the spread to be added to the YTM of the
GoI security.
v. Compare the grossed up/ cum-tax dividend rate of step (a)

above with the risk-adjusted YTM of the preference share
arrived at step (c) or (d) above and use the higherof the two
rates as the effective YTM for valuation of the preference
share.
vi. Where investment in preference shares is as part of

rehabilitation, the YTM rate should not be lower than 1.5%
above the coupon rate/ YTM for GOI loan of equal maturity.
vii. Where preference dividends are in arrears, no credit should be

taken for accrued dividends (the period of pendency should be
reckoned as per the extant prudential norms) and the value
determined on YTM should be discounted by at least 15% if
arrears are for one year, and more if arrears are for more than
one year. The depreciation/ provision requirement arrived at
in the above manner in respect of non-performing shares
where dividends are in arrears shall not be allowed to be set-
off against appreciation against other preference shares.
viii. When a preference share has been traded on stock exchange

within 15 days prior to the valuation date, the value should not
be higher than the price at which the share was traded.
1.6.6.1.2. Preference shares with taxable dividend
In view of the changes in the tax treatment of the dividend

income in the Finance Act, 2002 (which now permits offsetting
of the dividend inflows against the dividend outflows for tax
purposes), the adjustment in YTM for the tax-free nature of
dividend on preference shares would not be necessary. The
following valuation methodology for the unquoted preference
shares should be adopted:
i. Determine the YTM of the preference shares as per its cash

flow profile;
ii. Determine the YTM for GOI security of equal residual maturity
and add the applicable credit spread / risk premium as per the
rating of the preference share by the rating agencies subject
to the following:
a) The rate used for the YTM for unrated preference shares
should not be less than the rate applicable to rated
preference shares of equivalent maturity. The mark-up for
the unrated preference shares should appropriately reflect
the credit risk borne by the FI. In case the company issuing
unrated preference shares has any other rated instruments
31
which are outstanding, then a rating one full-notch below

that rating should be arrived at. (For instance, for a ‘AAA’
rating, only ‘AA’ rating should be reckoned). In case more
than one rated instrument issued by the company is
outstanding, then the rating of that instrument which has
been assigned the rating most recently, should be
reckoned. The risk spread corresponding to such rating, as
announced by FBIL, would be the spread to be added to the
YTM of the GoI security. In case, no other instrument of the
company issuing the preference shares has been rated and
is outstanding, then a credit spread not less than the
spread applicable to a bond of minimum investment grade,
i.e., a ‘BBB’ rated bond, would be the spread to be added
to the YTM of the GoI security.
b) Where investment in preference shares is as part of

rehabilitation, the YTM rate should not be lower than 1.5%
above the coupon rate/ YTM for GOI loan of equal maturity.
iii. Value the preference share as per the following formula:
(YTM of the preference share) x 100

rate arrived at step (b) above
subject to following conditions
a) Where preference dividends are in arrears, no credit should

be taken for accrued dividends (the period of pendency
should be reckoned as per the extant prudential norms)
and the value determined on YTM should be discounted by
at least 15% if arrears are for one year, and more if arrears
are for more than one year. The depreciation/ provision
requirement arrived at in the above manner in respect of
non-performing shares where dividends are in arrears shall
not be allowed to be set-off against appreciation against
other preference shares.
b) When a preference share has been traded on stock

exchange within 15 days prior to the valuation date, the
value should not be higher than the price at which the
share was traded.
1.6.6.2. Preference shares in the nature of advance
i. Preference shares in the nature of advance should be valued

by notionally extending to them the asset-classification of the
outstanding loans of the issuing company and provision for
depreciation in the value of preference shares made
accordingly. In case the said loans are in the standard
category, provision as per norms applicable to the standard
loan assets would be required for the depreciation in the value
of these shares. In case the loans are in the doubtful category,
the preference shares should be treated as an unsecured
facility and fully provided for.
32
ii. The preference shares acquired by conversion of loans /

debentures in the nature of advance could be viewed as loan
equivalent. Such shares would also carry an obligation of
dividend payment.
iii. Hence, in cases where there was no loan outstanding against

a borrower company which had issued the shares, the record
of dividend receipt on the preference shares should be looked
into to determine the asset classification of the preference
shares, as per record of recovery. For the purpose of asset
classification, the due date of dividend payment on
preference shares should be reckoned as the date of the
closing of annual accounts of the company concerned.
iv. Accordingly, if the dividend on preference shares is not

received within 90 days from the date of closing of annual
accounts of the issuing company, the shares should be treated
as NPI and provided for accordingly.
1.6.6.3. Non project related and redeemable Preference shares
Such preference shares being eligible to be kept in the HTM category,

within the 25% ceiling, could be valued at acquisition cost / amortised
cost subject to provisioning for permanent diminution, if any, in value
- for which payment of dividend would also be a relevant factor.
1.6.7. Equity Shares
1.6.7.1. Equity Shares in the nature of advance
i) The equity holdings in the nature of advance should be

compulsorily placed in the ‘Available For Sale’ category. The
equity shares should be considered to be in the nature of
advances if the equity shares were issued as part of a
proposal for project finance. Such equity should be valued by
notionally extending to it the asset-classification of the
outstanding loans of the issuing company and provision for
depreciation in the value of equity made accordingly. In case
the said loans are in the standard category, provision as
applicable to the standard loan assets would be required for
the depreciation in the equity value but in case the loans are
in the doubtful category, the equity held should be treated as
an unsecured facility and fully provided for.
ii) The equity shares in the nature of advance, in cases where no

loan against the company issuing the shares was outstanding,
should be valued at market price, if listed and quoted,
provided the latest market quotation was not more than 30
day old as on the date of valuation.
iii) The market price in such cases should not be based on a

solitary or small value transaction but on price observed in a
reasonable volume transaction, between two independent
parties in an arm's-length relationship.
33
iv) If such shares happen to be 'thinly traded shares', they should

be valued as per the extant norms.
v) The unquoted equity shares or where current quotations are

not available, should be valued at 'break up' value (without
considering revaluation reserves, if any) derived from the
company's latest balance sheet. In case, the latest balance
sheet is not available, the shares should be valued at Re.1/-
per company.
1.6.7.2. Equity Shares not in the nature of advance
i) Valuation would be done on the basis of the closing price as

on the valuation date on the NSE. In case, the quote for the
scrip is not available on NSE, the closing price on BSE would
be taken for valuation. In case the scrip is not traded on that
day on either NSE or BSE then the closing price during the
previous day / week or last traded price would be considered.
For shares which are listed and traded only on the Regional
Stock Exchanges (RSE), the closing price on the valuation
date at the respective RSE would be taken for valuation.
Those scrips for which current quotations are not available or
where the shares are not quoted on Stock Exchange, should
be valued at break-up value (without considering revaluation
reserves, if any) which is to be ascertained from the
company's latest balance sheet. In case the latest balance
sheet is not available the shares are to be valued at Re.1/- per
company.
ii) The investment in equity shares issued in IPO/FPO where the

allotment has been made and the listing is scheduled and in
between quarterly/half yearly/annual closing falls due, such
equity shares would be valued at acquisition price.
1.6.7.3. Definitions
a. Quoted equity share
i. An equity share, if the latest market quotation available, as

at the date of valuation, is more than 30 day-old, it may be
considered to be an unquoted investment and valued at break
up value, as prescribed. Furthermore, the market price for
valuation of quoted equity shares should not be derived from
a solitary trade for a small-volume transaction but should be
the price observed for a reasonable volume of transaction
between two independent parties in an arm's length
relationship.
b. Thinly-traded shares / equity related securities’ (such as convertible

debentures, equity warrants, etc.) should be identified and valued as
detailed below.
i. Thinly traded equity shares / equity related securities would be

those for which the trading in a month is for less than `5 lakh
or the total trading volume is less than 50,000 shares. Where
34
the stock exchange concerned identifies such securities as per

the foregoing criteria and publishes / provides such
information for the preceding calendar month along with the
daily quotations, such latest quotations should be used for
valuation of such shares.
ii. In case the equity is listed on a stock exchange, which does

not provide such information, the Bank will undertake its own
analysis as per above criteria to determine whether the share
is a thinly traded one. If so, the latest available quotation
should be used for valuation.
c. The age of the 'latest' balance sheet
In respect of companies, which close their annual accounts on

dates other than March 31, the latest balance sheet used for
determining the break up value should not be older than 21
months, as on the date of valuation.
1.6.8. Mutual Funds Units
Investment in quoted Mutual Fund Units should be valued as per Stock

Exchange quotations. Investment in non-quoted Mutual Fund Units is to
be valued on the basis of the latest repurchase price declared by the
Mutual Fund in respect of each particular Scheme. In case of funds with
a lock-in period, where repurchase price/ market quote is not available,
Units could be valued at NAV. If NAV is not available, then these could
be valued at cost, till the end of the lock-in period.
1.6.9. Commercial Paper/ Certificate of Deposits / Bill Rediscounting Scheme
Commercial paper / Certificate of Deposits / Bill Rediscounting Scheme

should be valued at the carrying cost.
1.6.10. Venture Capital Funds (VCFs)
The quoted equity shares / bonds/ units of VCFs in the bank's portfolio
should be held under Available for Sale category and marked to market
preferably on a daily basis, but at least on a weekly basis in line with
valuation norms for other equity shares as per existing instructions.
Banks’ investments in unquoted shares/bonds/units of VCFs made after
issuance of prudential guidelines on investments in VCFs vide RBI DBOD.
FID.FIC.No. 9/01.02.00/2010-11 dated December 1, 2010 will be
classified under Held to Maturity category for initial period of three years
and will be valued at cost during this period. For the investments made
before issuance of these guidelines, the classification would be as per
the existing norms. For this purpose, the period of three years will be
reckoned separately for each disbursement made by the bank to VCF as
and when the committed capital is called up. However, to ensure
conformity with the existing norms for transferring securities from Held
to Maturity category, transfer of all securities which have completed
three years as mentioned above will be effected at the beginning of the
next accounting year in one lot to coincide with the annual transfer of
investments from Held to Maturity category. The delegated authority for
this shifting from Held to Maturity category to Available for Sale category
35
would be Chief General Manager, TRMV. After three years, the unquoted
units/shares/bonds should be transferred to Available for Sale category
and valued as under:
i) Units: In the case of investments in the form of units, the valuation

will be done at the Net Asset Value (NAV) shown by the VCF in its
financial statements. Depreciation, if any, on the units based on NAV
has to be provided at the time of shifting the investments to Available
for Sale category from Held to Maturity category as also on
subsequent valuations which should be done at quarterly or more
frequent intervals based on the financial statements received from
the VCF. At least once in a year, the units should be valued based on
the audited results. However, if the audited balance sheet/ financial
statements showing NAV figures are not available continuously for
more than 18 months as on the date of valuation, the investments
are to be valued at Rupee 1.00 per VCF.
ii) Equity: In the case of investments in the form of shares, the valuation
can be done at the required frequency based on the break-up value
(without considering ‘revaluation reserves’, if any) which is to be
ascertained from the company’s (VCF’s) latest balance sheet (which
should not be more than 18 months prior to the date of valuation).
Depreciation, if any on the shares has to be provided at the time of
shifting the investments to Available for Sale category as also on
subsequent valuations which should be done at quarterly or more
frequent intervals. If the latest balance sheet available is more than
18 months old, the shares are to be valued at Rupee.1.00 per
company.
iii) Bonds: The investment in the bonds of VCFs, if any, should be valued
as per prudential norms for classification, valuation and operation of
investment portfolio by banks/FIs issued by RBI from time to time.
1.6.11. Recognition of permanent diminution in the value of investments in

banks’ subsidiaries / joint ventures
i) SIDBI is required to recognise any diminution, other than temporary,

in the value of their investments in subsidiaries / joint ventures which
are included under Held to Maturity category and provide therefor.
The need to determine whether impairment has occurred is a
continuous process and the need for such determination will arise in
the following circumstances:
a. On the happening of an event which suggests that impairment

has occurred. This would include:
i. the company has defaulted in repayment of its debt

obligations.
ii. the loan amount of the company with any bank/FI has been
restructured.
iii. the credit rating of the company has been downgraded to

below investment grade.
36
b. When the company has incurred losses for a continuous period of

three years and the net worth has consequently been reduced by
25% or more.
c. In the case of new company or a new project when the originally

projected date of achieving the breakeven point has been
extended i.e., the company or the project has not achieved break-
even within the gestation period as originally envisaged.
ii) When the need to determine whether impairment has occurred arises in
respect of a subsidiary, joint venture or a material investment, the FI
should obtain a valuation of the investment by a reputed / qualified
valuer and make provision for the impairment, if any.
(Ref. RBI circular DBOD.FID.FIC.No.11/01.02.00/2010-11 dated February

1, 2011)
1.6.12. Security Receipts / Pass Through Certificates issued by

Reconstruction Company / Securitisation Company
i) When Bank would invest in the security receipts / pass-through

certificates(PTCs) issued by Securitisation Company (SC) /
Reconstruction Company (RC) in respect of the financial assets sold
by banks/FIs to the SC / RC, the sale shall be recognised in books of
the Bank at the lower of:
a. the redemption value of the security receipts / pass through

certificates, and
b. the Net Book Value (NBV) of the financial asset.
ii) The above investment should be carried in the books of the Bank at
the price as determined above until its sale or realisation, and on
such sale or realisation, the loss or gain must be dealt with as under:
a. if the sale to SC /RC is at a price below the net book value (NBV)
(ie. Book value less provisions held), the shortfall should be
debited to the profit and loss account of that year.
b. If the sale is for a value higher than the NBV, the excess
provision will not be reversed but will be utilised to meet the
shortfall / loss on account of sale of other financial assets to SC
/ RC. All instruments received by the Bank from SC / RC as sale
consideration for financial assets sold to them and also other
instruments issued by SC / RC in which the Bank invests will be
in the nature of non-Govt Debt securities. Accordingly, the
valuation, classification and other norms applicable to
investment in non-Govt Debt instruments prescribed by RBI
from time to time would be applicable to the Bank’s investment
in debentures / bonds / security receipts / PTCs issued by SC /
RC. However, if any of the above instruments issued by SC / RC
is limited to the actual realisation of the financial assets
assigned to the instruments in the concerned scheme the Bank
shall reckon the Net Asset Value (NAV), obtained from SC / RC
from time to time, for valuation of such investments.
37
iii) All Securitised papers would be valued on the basis of the Base Yield
Curve and Corporate Bond spread relative to the Weighted Average
Maturity of the Paper.
2. MANAGEMENT OF GOVT DEBT PORTFOLIO
2.1. The major sources of risks affecting the Govt Debt segment are the
General Market Risks viz., interest rate, yield curve, liquidity and
operational risks.
2.2. This Policy enables the Treasury to actively take part in the bidding
process for Govt Debt securities. While bidding for a new security, the
existing position of the portfolio vis-a-vis risk limits and other applicable
concentration limits shall be considered.
2.3. The price / yield at which the bid(s) were made would be compared with
the cut-off price / yield after the allotment of securities to assess the
efficiency of the bidding process of the Bank.
2.4. As per RBI guidelines all investment proposals must invariably contain
the category under which the proposed investment would be classified.
2.5. Most of the liabilities of the Bank are of long duration. In view of this, the
ceiling of duration for the Govt Debt segment of the Available for Sale
category shall be fixed at 7 years. The higher duration and resultant
enhancement in market risk on Govt Debt portfolio could be adequately
addressed in view of the current level of capital adequacy of the Bank.
Further, this would enable Bank to actively participate in the liquid G-secs
and realize the gains from the market movements.
2.6. The liquidity risk would be taken care by considering the likely liquidity of
the security both at the time of primary purchase and also by
continuously monitoring the marketable securities from time to time. A
number of parameters such as:
 no. of days a security is traded;
 volume traded;
 frequency of trading;
 no. of days the security is continuously traded;
 per cent traded to outstanding value of the security;
will be used by the Bank to track liquidity. The liquidity-return trade-off

would be one of the main considerations in deciding on securities in the
Available for Sale category.
2.7. Procedural guideline for trading portfolio in debt securities
In order to ensure compliance of various guidelines issued by RBI, the

detailed procedure for trading portfolio is incorporated in the policy.
38
2.8. Size of the trading portfolio
The size of the trading portfolio shall have a ceiling of `1000 crores (face
value). The size can be varied depending upon market conditions and the
ceiling of the trading portfolio could be exceeded after taking approval of
the Competent Authority (Investment Committee / ALCO / Board).
2.9. Composition
The trading portfolio will consist of actively traded Government of India

stock. Generally actively traded securities in the secondary market are few
in numbers and these securities are prone to frequent change due to market
perception. The dealer shall closely monitor the liquidity of the securities in
the secondary market based on the liquidity parameters indicated earlier
and reshuffle the trading portfolio.
2.10. Holding Period
i) RBI has prescribed a period of maximum 90 days as holding period in

Held for Trading category. However, the objective of churning the
trading portfolio frequently depending on the opportunities available in
the market is to improve profit on a risk-adjusted basis as well as to
remain active in the secondary market.
ii) As per RBI guidelines if the markets turn adverse and unidirectional,
the security kept under HFT category may be shifted to AFS category
after taking approval from the Competent Authority (Investment
Committee / ALCO / Board) as a special case, only after fully providing
for the required depreciation on them.
2.11. Average Book Value
The Bank will apply the average price method for calculation of the
profitability for HFT and AFS category to determine the profit / loss to be
booked while undertaking secondary market transactions. This average
book value shall also be applicable for valuation of AFS category for
calculating the appreciation / depreciation on individual securities.
2.12. Daily Turnover Limit
The daily turnover in the secondary market for all the categories viz., HFT,
AFS and HTM for Govt Debt as well as non- Govt Debt securities will have
the upper limit of `1,000.00 crores (F.V). In case the above turnover is
exceeded for some reasons, the same shall be informed and got ratified
from the Investment Committee and reported to EC. However, transactions
in money market mutual funds, commercial paper and certificate of
deposits will not be taken into account while computing the daily turnover
limit..
2.13. Risk Measurement and Control
i) The trading in Govt Debt segment takes place mainly in treasury bills
and 5 years and 10 years government securities. In view of the same
and also in order to manage the risk arising out of adverse interest rate
39
movement, the ceiling for duration of the HFT portfolio would be 8

years.
ii) Cut loss and take profit limits for the HFT portfolio would be in terms of
the Delegation of Powers in force amended from time to time. The
dealers should strictly adhere to the above limits and exceptions if any,
should be reported to the top management citing reasons for the same.
iii) Mid-Office shall be monitoring the cut-loss and take profit limits on a
regular basis. The dealers shall take necessary steps to adhere to this
ceiling. In case the ceiling is exceeded due to market conditions beyond
control, action shall be initiated to get it ratified by the Investment
Committee and the same shall be reported in the review memorandum
to the Board of Directors.
iv) Each dealer shall be allowed to take position in a marketable lot of `

5.00 crore with a maximum limit of ` 25.00 crore per transaction in
respect of GoI dated securities, except T-Bills. In respect of T-Bills, each
dealer shall be allowed to take position in a marketable lot of `25 crore
with a maximum limit of `100 crore per transaction. In exceptional
circumstances or the rates being favourable in the bullish market,
dealers shall be permitted to close the deal in respect of the above
indicated limits per transaction with due approval of the GM, TRMV.
v) The dealers shall be allowed to sell securities from Available for Sale
category only on the prior approval of Investment Committee
constituted for Treasury functions.
vi) Treasury has a system to measure market risk / interest rate risk
exposure of investment portfolio by using one or more of the methods
such as gap management, duration & modified duration and value at
risk. The VaR is calculated on fixed income securities by using the
Bloomberg system.
3. MANAGEMENT OF NON-GOVT SECURITIES PORTFOLIO
3.1. Exposure ceilings and limits
Individual and group exposures as a percentage of Tier I and Tier II capital of

the bank
Presently, the Risk Management Vertical of the bank fixes the counterparty
exposure limits for various operations of the bank. The overall exposure to
the issuer would be fixed, with the approval of the Board, taking into
account the applicable regulatory guidelines and other prudential practices.
To reduce the various concentration related risks, the overall cap stipulated
for the Bank in the Loan Policy amended from time to time and presently in
force for each sector, industry, etc., would be kept in mind while
undertaking Treasury investments in debt and equities. The aggregate
exposure will include investment operations of Treasury and credit
extended by the Bank.
3.2. Investment in Non-Govt Debt Securities
3.2.1. Investment in Bonds / Debentures
40
The proforma for processing the proposal of private placement issues

shall be as per Annexure II. As per RBI guidelines the offer document
should mention the Board Resolution authorising the issue and
designation of the officials authorised to issue the offer documents. The
Board resolution authorising the issue should not be older than six
months from the date of issue and it should be signed by the authorised
signatory and should contain the necessary disclosure.
i. The offer document should contain the following minimum

information:
1. Name and address of registered office of the Company.
2. Full name (expanded initials) and addresses of directors and

the name of companies where they are directors.
3. Listing of the issue (if listed, name of the exchange).
4. Date of opening of the issue.
5. Date of closing of the issue.
6. Name and addresses of the auditors and lead managers /

arrangers.
7. Name and address of the trustee - consent letter to be

produced (in case of debenture Issue).
8. Rating from rating agency and / or copy of the rationale of

latest rating.
9. Particulars of the Issue
a. Objects
b. Project cost and means of financing (including contribution

of promoters in case of new projects).
ii. The model offer document should also contain the following
information:
1. Interest rate payable on application money till the date of

allotment.
2. Security : If it is a secured issue, type of security, type of charge,

trustees, private charge-holders, if any, and likely date of
creation of security, minimum security cover, revaluation, if any.
3. If the security is collateralized by a guarantee, a copy of the

guarantee or principal terms of the guarantee is to be included
in the offer document.
4. Interim Accounts, if any.
41
5. Summary of last audited Balance Sheet and Profit & Loss

Account with qualifications by Auditors, if any.
6. Last two published Balance Sheets may be enclosed.
7. Any conditions relating to tax exemption, capital adequacies

etc. are to be brought out fully in the documents.
8. The following details in case of companies undertaking major

expansion or new projects - (copy of project appraisal may be
made available on request)
a. Cost of the project, with sources and uses of funds
b. Date of commencement with projected cash flows
c. Date of financial closure (details of commitments by other

institutions to be provided)
d. Profile of the project (technology, market etc.)
e. Risk factors
9. If the instrument is of tenor of 5 years or more, projected cash

flows.
iii. Internal Credit Rating
While examining the proposals for investment in debt issues, Bank will
–
a) subject all its investment proposals relating to debt securities to the

same standards of credit appraisal as for its credit proposals,
irrespective of the fact that the proposed investments may be in
rated securities;
b) make its own internal credit analysis on its Risk Assessment Model
(RAM) and will assign internal rating to the issue even in respect of
externally rated issues and not to rely solely on the ratings of
external rating agencies. While an external credit rating of at least
'AA' is required for a debt issue for being considered for investment,
the minimum internal credit rating required for a debt issue to be
considered worth investing would be S3 on a scale of 12 rating
grades. Such ratings may be carried out by TRMV and the review
would be done by RiMV.
3.2.2. In order to conform to the RBI guidelines, in so far as investment in

non- Govt debt securities are concerned, the following should be
followed:
i. Total investment in unlisted non- Govt Debt securities should not

be more than 10% of total investment in non- Govt Debt securities
as on March 31 of the previous year. The unlisted debt securities
in which the FIs may invest up to the limits specified above, should
be rated and disclosure requirements as prescribed by the SEBI for
42
listed companies should be followed by the issuer company. Since

there is a time lag between issuance and listing of securities, which
are proposed to be listed but not listed at the time of subscription,
investment in non-Govt debt securities (both primary and
secondary market) by the Bank where the security is proposed to
be listed on the Exchange(s) may be considered as investment in
listed security at the time of making investment. However, if such
security is not listed within the period specified, the same will be
reckoned for the 10 per cent limit specified for unlisted non-Govt
debt securities. The investments in unlisted bonds of VCFs will be
exempted from these guidelines (Ref: RBI circular DBOD.No.BP.BC.
98/21.04.141/2009-10 dated April 23, 2010). However, the
investment in the following instruments will not be reckoned as
'unlisted non- Govt Debt securities' for monitoring compliance with
the above prudential limits:
1. Security Receipts (SRs) issued by Securitisation Companies /

Reconstruction Companies registered with RBI in terms of the
provisions of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Securities Interest (SARFAESI) Act,
2002; and
2. Asset Backed Securities (ABS) and Mortgage Backed Securities

(MBS) which are rated at or above the minimum investment
grade.
ii. The Bank should not invest in unrated securities but only in rated
ones carrying a minimum investment grade rating of 'AA' from a
credit rating agency registered with SEBI. Investments in securities
below ‘AA’ rating will not be undertaken. The investments in
unrated bonds of VCFs will be exempted from these guidelines
(Ref: RBI circular DBOD.No.BP.BC. 98/21.04.141/2009-10 dated
April 23, 2010).
iii. The rating migration should be monitored by tracking the financial

position of the issuer on half-yearly basis.
iv. The securities should not have original maturity of less than one
year except in case of Commercial Paper and Certificates of
Deposits.
v. The Bank should undertake usual due diligence in respect of

investments in debt securities including the securities which do not
attract RBI guidelines (RBI Circular NoRBI/2015-16/ 104
DBR.No.FID. FIC.3/01.02.00/2015-16 dated July 1, 2015).
vi. The Bank should ensure that all fresh investments in debt
securities are made only in listed debt securities of companies,
which comply with the requirements of the SEBI, except to the
extent mentioned in Para 3.2.2 (i) herein.
3.2.3. Disclosures
The Bank should disclose the details of the issuer composition of

investments made through private placement and the non-performing
43
investments in the 'Notes to Accounts' of the balance sheet in the format

prescribed by RBI / regulatory authority.
3.2.4. Investment &Sale of Non-Govt Debt Securities
Investment in and sale of non- Govt Debt securities may be approved by

the delegated authority.
3.3. Investment in equity
The exposure to such investments will be as per the RBI guidelines from
time to time.
3.3.1. Purchase &Sale of Equity Shares
3.3.1.1. Primary Market
a. Investment in shares acquired through primary market will be

approved by delegated authority on the recommendation of the
Investment Committee. The decision regarding sale in respect of
equity shares acquired from primary market and held in the AFS
category, whether quoted / unquoted would be taken by the
Investment Committee.
b. The stop loss limit for equity shares acquired through primary market
shall be in terms of the extant Delegation of Powers. Like-wise, the
book profit limit for equity shares acquired through primary market
is fixed at 15% of the acquisition cost. However, for shares which
were acquired from the primary market prior to 1st June 2009, the cut
loss / take profit limit will be with reference to the NSE published
closing price as on 1st June 2009.
c. The delegated authority relating to the cut loss limits in respect of

any scrip, acquired from Primary market would be as per the extant
Delegation of Powers in force amended from time to time.
3.3.1.2. Secondary Market
a. Delegated authority will approve such investments on the

recommendation of the Secondary Market Committee or
Investment Committee in the absence of Secondary Market
Committee
b. The investment selection for secondary market operations to be

kept limited to stocks of BSE 200, Nifty 50 and Nifty Junior.
c. Transactions could be done through the approved / empanelled

brokers which is dealt separately in para 10 viz., empanelment and
dealing with brokers. The transactions in secondary equity market,
irrespective of the categorisation may be undertaken with the due
recommendation/approval of the Secondary Market Committee.
44
d. Book Profit and Stop Loss limits are placed at 15% above or below
the average acquisition price of the scrips in the HFT and AFS
category for any particular scrip. The delegated authority relating
to cut loss limits in respect of any scrip, acquired from Secondary
market would be as per the extant Delegation of Powers in force
amended from time to time.
3.3.1.3 In respect of Investments / disinvestment of instruments, which do

not form part of treasury operations, whether such instruments are
listed (quoted / unquoted) or unlisted, the same shall be approved
by the competent authority, as per extant DoP, on the
recommendation of Investment Committee.
3.3.2. In case of investments in equity shares where the dividend is not
declared by the company in the previous year and the shares are not
quoted in the market, the value of shares may be written off from the
investment portfolio after taking prior approval of the Board of
Directors.
3.3.3. In order to minimize market risk, the Equity Research Desk / Mid Office
shall analyse the equity market on regular basis by providing data,
supported by internal assessment / external research support. The
data shall be analysed by taking volumes and price movement at the
BSE / NSE.
3.4. Portfolio Management Services for equity operations
In order to supplement Treasury’s own equity trading functions, the Bank

may, if required, engage the services of a professional and reputed portfolio
management company for managing a portion not exceeding 25% of the
limit fixed for secondary market operations in the Banks equity portfolio for
the particular financial year. The portfolio manager may be empanelled /
engaged after due diligence and ensuring that the firm has necessary
infrastructure and expertise including well established equity research
group for offering such services to client in conformity with SEBI guidelines.
The selection of such portfolio manager would need to be recommended by
the Investment Committee and duly approved by CMD / DMD and also
reported to the Board.
3.5. Monitoring and managing risks in the Non-Govt Debt portfolio
3.5.1. Credit Risk
i) The issuer of the securities should be a profit making organization at

least for the last three years. In case of new issuers i.e., those who have
not completed three years of operations, a view on investment may be
taken by the Investment Committee.
ii) The residual maturity of the instruments should not ordinarily exceed 10
years. Bank may, however, with the recommendation of the Investment
Committee, invest in instruments having residual maturity of more than
10 years.
45
iii) The issue must be either rated by external rating agencies such as
CRISIL, CARE, Fitch, or ICRA having a minimum credit rating of 'AA' or
guaranteed by the Central / State Government.
iv) TRMV shall also rate the credit worthiness of the issuers using the RAM
model developed by the Bank, to validate the ratings made available by
external agency for large corporates / banks. Such ratings would be
forwarded to RiMV for review. Deterioration in the rating subsequent to
the subscription shall be monitored by Mid Office and reported in the
review memorandum put up to the Board of Directors.
v) Rating Migration - In order to review the migration of rating of bonds and

debentures, the investments in such category have been classified into
the following two groups:
a. Bonds / debentures issued by Bank's own borrowers - Independent

rating by Credit Verticals is worked out periodically which shall be
applied for the bonds / debentures also.
b. Bonds / debentures issued by others who are not borrowers of the

Bank- The rating in such cases provided by the outside agency shall
be updated regularly by the Mid Office through the periodical rating
lists of CRISIL, ICRA, CARE or Fitch.
vi) A detailed appraisal would be carried out while considering investments

in non- Govt Debt Securities. The issuers would be evaluated in terms of
their capital adequacy, asset quality, efficiency, earnings, growth,
liquidity, future prospects & projections and management. Further, a
copy of the offer documents would be filed with CIBIL in case of
investments made on private placement basis.
vii) In order to estimate the default risk of unrated non- Govt Debt securities
(specifically, the bonds and debentures of corporates and Commercial
Paper of corporates), the parameters adopted for estimation of default
risk in respect of Bank's loan and advances portfolio by Credit Verticals
would be followed.
3.5.2. Market Risk
Market or interest rate risk of non- Govt Debt investment shall be

monitored on monthly basis using FBIL rates for valuation by the Mid-
Office and reported to the top management. Keeping in view the long
duration of liabilities of the Bank, the cap for duration of non- Govt Debt
investment in AFS category shall be fixed at 7 years. However, the
Investment Committee will have the powers to change the duration limit
in the light of changed environment both within and outside the Bank.
3.6. General Guidelines
Apart from whatever has been set out earlier, the following general
guidelines would be required to be followed while entering into investment
transactions by the Bank:
i) The Bank will not invest in instruments of Chit Funds, Nidhis and other
such companies.
46
ii) Investment in instruments of Non-Banking Financial Companies shall be

done on selective basis, after due consideration of each case.
iii) Investment in debentures/ PSU Bonds/ Commercial Papers/ CDs etc.

shall be subject to prudential norms of investment /RBI guidelines.
iv) The guidelines prescribed shall be applicable both to primary/ secondary

market operations of the Bank as permitted by Reserve Bank of India.
v) The documents relating to securities transactions shall be clearly and

carefully prepared avoiding any overwriting and correction. These shall
be scrutinised by the concerned person and changes/overwriting, if any,
shall be duly authenticated.
vi) The Bank will not handle any PMS or broker account.
vii) The Bank shall not take exposure on clients/companies where the Bank
had already suffered losses. No fresh investments will be made in
companies whose interest/principal is in arrears.
viii) Issuer’s name should not appear in the latest defaulter’s list of RBI or
CIBIL list.
ix) Besides rating of the instruments/securities, wherever required, the

Bank will analyse the fundamentals of each corporate / PSU and will
maintain separate credit file for each corporate / PSU in which the Bank
will make investments.
x) While making investments in various securities issued by corporates /

PSUs, Bank will adhere to exposure limit pertaining to individual
borrower / group of borrowers prescribed by RBI from time to time.
3.7. Investment in other fixed income money market instruments
The decision on the amount, tenure and mode of investments in all fixed
income money market instruments will be made keeping the overall funds
position of the Bank in view and as per applicable norms and guidelines of
RBI or any other regulatory authority in the matter and the internal
guidelines framed in this respect.
3.8. Treasury SBU
Performance of Treasury operations would be evaluated in terms of ALCO

approved transfer pricing mechanism from time to time.
4. ACCOUNTING & VALUATION NORMS
i) The accounting system followed would be in accordance with SIDBI’s

overall accounting policy, based on RBI guidelines.
ii) Cost of investment to be determined on the Weighted Average Cost

(WAC)method for valuation.
iii) The Reserve Bank of India (Amendment) Act, 2006 (Act No. 26 of 2006)
provides a legal definition of 'repo' and 'reverse repo' (vide sub-
47
sections (c) and (d) of section 45 U of Chapter III D of the Act) as an

instrument for borrowing (lending) funds by selling (purchasing)
securities with an agreement to repurchase (resell) the securities on a
mutually agreed future date at an agreed price which includes interest
for the funds borrowed (lent). Accordingly, to bring such transactions
onto the balance sheet in their true economic sense and enhance
transparency, RBI vide its circular No. IDMD/4135/11.08.43/2009-10
dated March 23, 2010 issued revised guidelines for accounting of repo
/ reverse repo transactions. Accounting for Repurchase transactions is
given in next para.
iv) RBI guidelines regarding NPAs and Capital Adequacy will be adhered
to.
v) Accounting and Valuation for FRA/IRS shall be as per RBI guidelines

contained in Circular No. MPD.BC.187/07.01.279/1999-2000 dated July
07, 1999 and further modifications, if any, effected by RBI from time to
time.
vi) Accounting and Valuation for IRD shall be as per RBI guidelines
contained in Circular No. IDMC.MSRD.4801/06.01.03/2002-03 dated
June 03, 2003 and further modifications, if any, effected by RBI from
time to time.
vii) Accounting and Valuation for STRIPS shall be as per RBI guidelines
contained in Circular No.IDMD.DOD.07/11.01.09/2009-10 dated March
25, 2010 and further modifications, if any, effected by RBI from time to
time.
viii) ‘Settlement Date’ accounting is to be followed for recording purchase

and sale of transactions in Government securities. (Ref RBI circular
DBOD. No. BP. BC.58/ 21.04.141/2010-11 dated November 04, 2010)
4.1. Repo Accounting
i) Repos can be undertaken from any of the three categories of

investments, viz., Held For Trading, Available For Sale and Held To
Maturity.
ii) The economic essence of a repo transaction, viz., borrowing (lending)

of funds by selling (purchasing) securities shall be reflected in the
books of the repo participants, by accounting the same as collateralized
lending and borrowing transaction (TREPS), with an agreement to
repurchase, on the agreed terms. Accordingly, the repo seller, i.e.,
borrower of funds in the first leg, shall not exclude the securities sold
under repo but continue to carry the same in his investment account
(please see the illustration given in the Annex) reflecting his continued
economic interest in the securities during the repo period. On the other
hand, the repo buyer, i.e., lender of funds in the first leg, shall not
include the securities purchased under repo in his investment account
but show it in a separate sub-head (please see the Annex). The
securities would, however, be transferred from the repo seller to repo
buyer as in the case of normal outright sale/purchase transactions and
such movement of securities shall be reflected using the Repo/Reverse
Repo Accounts and contra entries. In the case of repo seller, the Repo
48
Account is credited in the first leg for the securities sold (funds
received), while the same is reversed when the securities are
repurchased in the second leg. Similarly, in the case of repo buyer, the
Reverse Repo Account is debited for the amount of securities
purchased (funds lent) and the same is reversed in the second leg when
the securities are sold back.
iii) The first leg of the repo transaction should be contracted at the
prevailing market rates. The reversal (second leg) of the transaction
shall be such that the difference between the consideration amounts of
first and second legs should reflect the repo interest.
iv) The accounting principles to be followed while accounting for repo /

reverse repo transactions are given in Annexure III
4.1.1. Coupon /Discount
i) The repo seller shall continue to accrue the coupon/discount on

the securities sold under repo even during the repo period while
the repo buyer shall not accrue the same.
ii) In case the interest payment date of the security offered under
repo falls within the repo period, the coupons received by the
buyer of the security should be passed on to the seller of the
security on the date of receipt as the cash consideration payable
by the seller in the second leg does not include any intervening
cash flows. While the buyer will book the coupon during the period
of the repo, the seller will not accrue the coupon during the period
of the repo.
iii) In the case of discounted instruments like Treasury Bills, since there
is no coupon, the seller will continue to accrue the discount at the
original discount rate during the period of the repo. The buyer will
not therefore accrue the discount during the period of the repo.
4.1.2. Repo Interest Income / Expenditure
After the second leg of the repo / reverse repo transaction is over,
i) the difference in the clean price of the security between the first
leg and second leg shall be reckoned as Repo Interest Income /
Expenditure in the books of the repo buyer / seller respectively ;
and
ii) the difference between the accrued interest paid between the two
legs of the transaction should be shown as Repo Interest Income /
Expenditure account, as the case may be
iii) the balance outstanding in the Repo Interest Income / Expenditure

account should be transferred to the Profit and Loss account as an
income or an expenditure. As regards repo / reverse repo
49
transactions outstanding on the balance sheet date, only the

accrued income / expenditure till the balance sheet date should be
taken to the Profit and Loss account. Any repo income /
expenditure for the remaining period should be reckoned for the
next accounting period.
4.1.3. Marking to Market
The repo seller shall continue to mark to market the securities sold under
repo transactions as per the investment classification of the security. To
illustrate, in case the securities sold by banks under repo transactions
are out of the Available for Sale category, then the mark to market
valuation for such securities should be done at least once a quarter. For
entities which do not follow any investment classification norms, the
valuation for securities sold under repo transactions may be in
accordance with the valuation norms followed by them in respect of
securities of similar nature.
4.1.4. Classification of Accounts
The balances in Repo A/c and Reverse Repo A/c shall be suitably
classified in the balance sheet. The balances in Repo interest
expenditure A/c and Reverse Repo interest income A/c shall also be
suitably classified.
4.1.5. Disclosure
The following disclosures should be made by the FIs in the “Notes on

Accounts’ to the Balance Sheet:
(Rs in crore)
Minimum Maximum Daily Average Outstanding
outstanding outstanding outstanding as on March
during the during the during the 31
year year year
Securities sold
under repos
Government
Securities
ii) Corporate
Debt Securities
Securities
purchased
under reverse
repos
Government
Securities
ii) Corporate
Debt Securities
4.1.6. Accounting methodology
The accounting methodology to be followed, as enumerated in RBI

Circular FMRD.DIRD.01/14.03.038/2018-19 dated July 24, 2018
50
(‘Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018’) is

given in Annexure IV.
4.1.7. To obviate disputes arising out of repo transactions, the participants,

are required to enter into bilateral Master Repo Agreement as per the
documentation finalized by FIMMDA/FBIL. The Master Repo Agreement
finalised by FIMMDA/FBIL is not mandatory for repo transactions in
Government Securities settling through a Central Counter Party (CCP)
[eg. Clearing Corporation of India Limited (CCIL)], having various
safeguards like haircut, MTM price, margin, Multilateral netting, closing
out, right to set off, settlement guarantee fund/ collaterals, defaults,
risk management and dispute resolution/ arbitration etc. However,
Master Repo Agreement is mandatory for repo transactions in
Corporate Debt Securities, which is settled bilaterally without involving
a CCP.
4.2. Accounting and Valuation of STRIPS
i) STRIPS, being zero coupon securities, trade at a discount and are

redeemed at face value. Thus, STRIPS will have to be valued and
accounted for as zero coupon bonds and in the manner prescribed vide
para 3.7.2 in the DBOD Master Circular dated July 1, 2009 on prudential
norms for classification, valuation and operation of investment portfolio
by banks.
ii) The discount rates used for valuation of STRIPS at inception should be
market-based. However, in case traded zero-coupon rates are not
available, the zero coupon yields published by FBIL should be used
instead.
iii) Accounting entries in the SGL accounts as a consequence of

stripping/reconstitution, will be passed at the face value. Thus, when a
participant places a request for stripping, his SGL account will be
debited by the face value of the Government security submitted for this
purpose, and will be simultaneously credited with the aggregate face
value of Coupon STRIPS (equal to the aggregate coupon amounts) as
well as the face value of Principal STRIPS (equal to the face value of the
government security).
iv) However, on the day of stripping, the STRIPS should be recognised in

the books of account of the participant at their discounted value and at
the same time, the Government security in question should be
derecognised. The accounting treatment for reconstitution should be
exactly the opposite of stripping.
v) The stripping/reconstitution, per se, should not result in any profit or

loss. As the present value of the STRIPS (coupon as well as principal)
discounted using the ZCYC will not be equal to the book value/market
value of the security, the value of STRIPS shall be normalized using a
factor that will be the ratio of the book value or market value of the
security (whichever is lower) to the sum total of the market value of all
STRIPS created out of the security. This will ensure that the sum total
of the market value of STRIPS equals the book value/market value of
the security, whichever is lower.
51
vi) Banks can strip eligible Government securities held under the AFS/HFT
category of their investment portfolio. However, if strips are to be
created out of securities held in the HTM category, then the security
first needs to be transferred to AFS/HFT category. The shifting of
securities from HTM category for the purpose of stripping, will be as per
the relevant guidelines prescribed vide DBOD Master Circular dated
July 1, 2009 on prudential norms for classification, valuation and
operation of investment portfolio by banks.
vii) In case STRIPS are created from securities held in the HTM portfolio,
the securities should be transferred from the HTM category to the
AFS/HFT category (as per the shifting discipline from HTM, i.e., once a
year at the beginning of the year as per the above-mentioned master
circular dated July 01, 2009) and the shifted security shall be carried at
the least of the book value/market value. Depreciation, if any, shall be
provided for and appreciation, if any, ignored as hitherto. Thereafter,
the lower of the book value/market value will be used for normalizing
the market value of individual STRIPS to the book value/market value.
Post-stripping, the book value/market value of the existing securities
will be derecognized and replaced by the normalized value of STRIPS
whose sum total shall exactly equal the book value/market value of the
extinguished security (thereby ensuring that there is no profit or loss
on account of stripping). Any appreciation, arising due to the shifting of
the security from HTM shall be ignored. The same methodology would
follow for securities that are stripped from the AFS/HFT portfolio.
viii)
a) Before a security is stripped, it must be marked to market.

Appreciation, if any, should be ignored and depreciation, if any,
must be recognised if the market value is lower than the book
value. Such depreciation cannot be aggregated for the purpose
of arriving at net depreciation/appreciation of investment under
the AFS/HFT category. The book value/market value of the
security, whichever is lower, must be used to normalise the
STRIPS.
b) The Normalisation principle, on stripping/reconstitution will be

applied on the clean price of the security (without considering
the accrued interest) as the accrued interest is booked as
income/expenditure.
c) Normalisation should also be applied in the case of reconstitution

(even when STRIPS are acquired from the market).
d) The book value of the STRIPS Zero Coupon Bonds (ZCBs) should
be valued and marked to market as per extant RBI guidelines.
Accordingly, the book value of the STRIPS shall be marked up to
the extent of accrued interest before MTM. In other words, once
a security has been acquired, it will attract the treatment
accorded to any other zero coupon security.
52
ix) The minimum amount of securities that needs to be submitted for

Stripping / Reconstitution will be `.1 crore (face value) and multiples
thereof.
5. CROSS HOLDING OF CAPITAL AMONG BANKS / FIs
i) The investment of the Bank in the following instruments, which are issued
by other banks / FIs and are eligible for capital status for the investee bank
/ FI, should not exceed 10 percent of the capital funds of the Bank (Tier I
plus Tier II):
a. Equity shares;
b. Preference shares eligible for capital status;
c. Subordinated debt instruments;
d. Hybrid debt capital instruments; and
e. Any other instrument approved as in the nature of capital.
ii) The Bank should not acquire any fresh stake in equity shares of other banks,
if by such acquisition the holding of the Bank exceeds 5 percent of the
investee bank's equity capital. The Bank’s equity holdings in another bank
held under provisions of a Statute will be outside the purview of the ceiling
prescribed above. However, in case of a strategic investment, exceeding
the above, RBI / Board approval would be taken.
iii) The investments of the Bank in the equity capital of subsidiaries are at
present deducted from its Tier I capital for capital adequacy purposes.
Investments in the instruments issued by other banks / FIs which are listed
at paragraph 5(i) above, which are not deducted from Tier I capital of the
Bank, will attract 100 percent risk weight for credit risk for capital adequacy
purposes.
6. FUNCTIONAL SEPARATION OF DUTIES
To take care of the operational risk in the management of Treasury operations

arising out of frauds, human errors etc, the following internal control
mechanism is suggested. The Front, Mid and Back Offices are to be clearly
demarcated and should be functionally separated as given below.
6.1. Front Office
6.1.1. The Front Office will consist of the Dealing Room and Supporting
Officers / Managers. The Dealing Room shall be located at Mumbai and
shall have dealers in the rank of Assistant Managers / Managers /
Assistant General Managers. This section shall take care of dealing
activities up to the limit permitted. However, the dealers shall not be
permitted to operate upon the SGL Account and Bank's Current
Accounts with RBI.
6.1.2. The Chief Dealer / GM (TRMV) shall ensure to rotate Dealer(s) in the
Dealing Room from one Desk to another to enable them to have
exposure across different asset classes namely, Money Market
53
Operations (MMO), Capital Market Operations (CMO), Fixed Income

Securities(FIS) and Forex Operations(Forex). It shall be ensured that
no Dealer is continuously handling the same asset class for a period
exceeding 3 years or such additional period as may be approved by
HRV, apart from ensuring availment of compulsory leave as per
guideline issued by HRV. The maximum tenure for any officer in all
desks in Dealing Room would be subject to HRV Policy.
6.1.3. Mobile phones and visitors would not be allowed in the dealing room.
6.1.4. Dealing Room Functions
i) Dealing in Primary / Secondary market as mentioned above.
ii) Entering of all Deals into the software.
iii) Generate serially numbered deal slips from the software, check
the particulars, sign it and pass-on to the back office. The deal
slips should contain data relating to nature of the deal, name of
the counterparty, whether it is a direct deal or through a broker,
and if through a broker, name of the broker, details of security,
amount, price, contract date and time. The deal slips should be
controlled separately to ensure that each deal slip has been
properly accounted for. Once the deal is concluded, the deal slip
should immediately be passed by the dealer to the back office
for recording and processing.
iv) The front office shall prepare office note for investment in the
primary market for Govt Debt investments, participate in RBI
Auction, OMO for Central Government securities (T-Bills and GoI
dated securities), State Government Securities for approval of
the competent authority.
v) The proposal for investment in the primary market for non-Govt

Debt securities shall be discussed in the Investment Committee
and the process note shall be prepared for recommendation of
the Investment Committee.
vi) Whenever the upfront fee / incentive is negotiated, the same

shall be recorded and informed to back office.
6.2. Mid Office
The measurement and monitoring of the risk parameters along with

compiling / furnishing market data shall be the responsibility of the Mid
Office. The Mid Office shall report to the management / Investment
Committee the portfolio positions with its YTM, Current Yield, Duration, etc.
The VaR, Convexity and Present Value Basis Point [PVBP] measures and its
applications security wise and portfolio wise shall be implemented in due
course. The broker exposure limits, exceeding the ceiling of exposure in a
particular investment on daily basis shall be monitored and reported to top
management. As desired by RBI it is proposed to adhere to various risk
mitigants given as under:
54
i) To ensure compliance of Bank exposure to individual and group of

borrowers.
ii) To ensure compliance of RBI guidelines in respect of Bank's

investment in various instruments viz., equity shares, convertible
/ non-convertible debentures, units of mutual funds, etc. issued
from time to time.
iii) To ensure verification, random basis, of the voice recording system

installed in Dealing Room and Back Office, on daily basis and
report to RiMV.
iv) To verify the call made on the recording system, on random basis,
installed in the Dealing Room and Back Office.
v) To retain the voice call record in the system for 5 year period .
vi) To ensure regular back up of such voice call record and preserve
for easy retrieval.
vii) To review and comment on any new activities to be initiated at

Treasury, including new products developed and provide sign off.
6.3. Back Office
The Back Office shall discharge the under noted functions:
i) To fill up the required application form for subscription in the

primary/ secondary market as per the sanction. The application
shall be signed by the authorised officials of the Bank.
ii) Settlement of Treasury transactions shall be effected by the Back

Office in accordance with the issuer terms and sanctioned terms
and conditions.
iii) The payment will be made to the debit of suspense account

pending allotment and necessary follow up shall be made to
ensure reversal of such entries at the earliest.
iv) Accounting section of the Back Office shall settle all the
transactions entered into the system, generate / pass necessary
vouchers for all transactions in the investment portfolio.
v) All records of investments to be maintained in the system (soft

version), location of securities, interest collection, redemption etc.
to be recorded by the Back Office. Contract register in the system
shall be maintained by the Back Office incorporating details of the
deals, counterparty, broker, brokerage paid if any etc.
vi) Back Office will look after maintenance of Deal Slip Register,
Broker Ledger and Broker-wise exposures in the system.
vii) The security documents should be kept in dual custody with the
Back Office.
55
viii) The name of the counterparty shall be confirmed by preparing deal

confirmation slips, and to ensure that a copy of the deal
confirmation slip is obtained from the counter party duly
authenticated in case of non-NDS Deals.
ix) In case of SGL transactions, records of SGL transfer forms issued

and received should be maintained. Balances as per the books of
the Bank should be reconciled at quarterly intervals with the
balances in the books of PDOs.
x) The SGL transfer form duly signed by two authorised officials

whose signatures are registered with RBI will be prepared either at
Mumbai or at Delhi and submitted for Delivery versus Payment
[DVP] with RBI in case of non-NDS Deals.
xi) In case of purchase transaction, the SGL transfer form received

from the counter party shall be verified for correctness of the
transaction with the deal slip before it is submitted to RBI for DVP
in case of non-NDS Deals.
xii) Any bouncing of SGL transfer form by selling counterparty bank /

FI should immediately be reported to the Department of Banking
Operations and Development (DBOD) of the RBI by the Bank.
xiii) Preparation / generation of all reports / statements related to

monthly, quarterly, half yearly and yearly closings as per
requirement of the Bank / RBI and reconcile with books.
xiv) The details of transactions in securities, details of bouncing of SGL

transfer forms issued by other banks / FIs and BRs outstanding for
more than one month will be reported to the management on
weekly basis along with review of investment transactions
undertaken during the period.
xv) In case of deals through brokers the contract note from the brokers
should be obtained and verified with the deal slip, the substitution
of counterparty on the security should not be permitted.
xvi) The Back Office shall verify the rates at which the deals were
concluded during the day to confirm if the deal rates are around
the market quoted rates. Any significant variations should be
brought to the attention of CGM, TRMV along with explanation
offered by the Dealer.
6.4. The Negotiated Dealing System (both Order Matching Negotiated Dealing
System and the existing Negotiated Dealing System) for effecting delivery
and settlement of Government securities transactions through Clearing
Corporation of India is being undertaken at present and most of the deals
are settled on the computers duly connected with Reserve Bank of India
at Mumbai. However, in exceptional circumstances due to failure of NDS
or some operating difficulties with participants the approval is given by the
RBI on case-to-case basis to settle the deal through SGL transfer. The Bank
has taken connectivity of NDS and the membership of Clearing Corporation
of India for effecting delivery / settlement of Govt. Securities transactions.
The charges of Clearing Corporation of India are paid on monthly basis.
56
The officers discharging domestic treasury functions are also acting as

dealers, authorizers or settlers for effecting delivery on daily basis subject
to their availability.
7. EXPOSURE LIMITS
7.1. The overall investment / borrowing in various instruments (outstanding

plus proposed) as on date of investment shall not exceed the following
limits:
Instrument Percent share in

total investment ^
Investments
TREPS lending 70
Treasury Bills / G-Sec/ Cash Management Bills 50
Reverse Repo ** 30
Certificate of Deposit 70
Deposit with Banks 50
Deposits with Corporates including ICDs * `950 crore
Commercial Paper # 50
Bills Rediscounting 15
PSU Bonds, Bonds of FIs/Banks & Other 50
Corporates (including Zero Coupon Bonds)
Zero Coupon Bonds 5
Mutual Funds $ 60
Borrowings @
TREPS borrowing 50
Repo & 50
^ For the purpose of exposure limit computation as given in the above table,
strategic investments and other non-treasury investments will be excluded
from total investments. Exposure under ‘Deposits with Corporates including
ICDs’ has been frozen at `950 crore. All other exposures are indicated in
percentage terms.
* Deposits with corporate and Inter-Corporate Deposits (ICDs) will be grouped

under “Others /Investments” and provisions applicable for standard assets
will be made applicable. These deposits will be classified under AFS/HFT
category.
** includes lending by way of Corporate Bond Repo.
$ Investment in mutual fund schemes will be subject to a cap of 40 per cent

of the Bank’s net worth as on March 31 of the previous year.
@ In respect of borrowing under TREPS the limits prescribed constitutes the

percentage of aggregate investments in Treasury.
& Within the limit for borrowing by way of Repo, a sub-limit of 25% (within
the overall limit of 50% for repos) is allocated for borrowing by way of Repo
in corporate bonds.
7.2. Operating variations, if any, in the above limits are to be ratified by CMD /
DMD with explanation of circumstances leading to such variation being
57
given by CGM / GM, Treasury. The position shall be reported in the review
of Treasury operations to the Board of Directors. This, however, does not
apply to variations due to changes in total investible surplus funds after the
date of investment.
7.3. CMD / DMD can approve investment and exposure limit in any other
instrument as and when developed and which are not defined in the policy
so far as well as deviations in the parameters set in this policy for various
investments/ activities. Such investments/deviations authorised by CMD /
DMD shall be subject to reporting to the Board.
7.4. SIDBI invests its funds subject to counterparty-wise exposure limits.

Presently, these limits are computed for the Bank as a whole by Risk
Management Vertical (RiMV). Depending upon the operational
requirements, RiMV sub-allocates the aggregate limits for Treasury and
business operations.
7.5. TRMV shall ensure that exposure to a single entity / counterparty on any
specific instrument is not high and shall take suitable steps to ensure
diversification of the instruments while taking up incremental exposure on
any single entity / counterparty.
8. MIS AND PERIODIC REPORTING OF POSITIONS
S Return Purpose Periodicity Prepared To be

No by submitted to
1 Post Sanction Report on Monthly TRMV CMD/DMD

Reporting of treasury
Transactions / activities
Income and Profit
of Treasury
2 Total resources Outstanding Monthly RiMV RBI
invested and regarding
deployment of deployment of
Short term short term
resources resources vide
RBI letter
D.O.No.3546 /
03-13-02/93
dated April 17,
1993
3 Review of Income, Half yearly TRMV Board
Investments by Capital Market
Treasury Exposure,
Rating
Migration,
Cross Holding,
HTM %
4 Classification and Annual shifting Annual TRMV Board
Valuation of of investments
Investments to HTM,
Provision made
58
S Return Purpose Periodicity Prepared To be

No by submitted to
due to shifting,
HTM %
5 Approval of CMD / Approval of As and TRMV Board

DMD for investments when
investments / required
borrowings in
instruments not
defined in the
policy
6 Investment Policy Policy Annual RiMV Board to approve
- Review reviewed for on the
modification, if recommendation
any, on the of RiMC
basis of
regulatory
guidelines,
new product
etc.
7 Daily MIS of Monitoring of Daily RiMV Vertical Head of
Treasury treasury RiMV & TRMV.
Operations operations
9. INVESTMENT COMMITTEE AND DELEGATION OF POWERS
9.1. The Investment Committee (IC) shall be constituted by CMD. The IC shall
be headed by DMD comprising of CGM, Treasury and CGM, CAV. The IC will
guide the investment decision in TRMV.
9.2. A meeting may be held by the IC members communicating with each other
by any technological means by which they are simultaneously able to
securely hear each other and participate in the discussion. The Committee
can request the attendance of any person it considers appropriate at any
of its meetings. Quorum for holding the meeting would be 50% of the
strength of the Committee at any point of time, including the Chairman of
the Committee. In case 50% works out to a fraction it would be rounded off
to the next higher number. In case the Investment Committee is unable to
meet for some reasons, the agenda items can be passed by circulation, in
case of urgency.
9.3. All Investment / disinvestment proposals (except the ones listed below)
relating to equity / equity linked instruments are to be recommended by
Investment Committee:-
i. Investments / Disinvestment arising from compromise agreement.

ii. Investments undertaken by Direct Credit Vertical in the form of
Participative Debt Structure (with or without equity kicker), equity
based products etc.
iii. Equity Investments under India Microfinance Equity Fund
iv. Equity Investments associated with Venture Capital operations.
59
v. Investments coming under the purview of Secondary Market

Committee
9.4. The broad functions of the Investment Committee are:
i) To advise and approve strategies concerning various investments /

trading options within the ambit of this Policy and RBI guidelines.
ii) To periodically review the portfolio of investments in equity shares

(both in the primary and secondary market).
iii) To approve shifting of investments from AFS category to HFT category

and vice-versa.
iv) To approve empanelment of brokers / distributors as well as to review

the existing panel of brokers / distributors.
v) Any other related item as approved by the Chairman of the Investment

Committee.
9.5. A Sub-Committee for Secondary Market trading in Equity is formed

comprising the General Manager (Treasury), Deputy General Manager
(Treasury) and other officials of the Bank with the approval of Chief
General Manager in charge of Treasury Vertical. Quorum for holding the
meeting of sub-committee will be 2 members. The buy, sell or hold
decision in respect of particular stock would be taken by this sub-
committee. Operational guidelines for functioning of the sub-committee
are given in Annexure III.
9.6. The extant Delegation of Powers relating to Treasury and AIC in force as
amended from time to time would be applicable.
9.7. All Investment Committee minutes would be reported to EC.
10. EMPANELMENT OF AND DEALING WITH BROKERS
10.1. After the introduction of Order Matching Negotiated Dealing System, the
Bank is not engaging the services of brokers for debt segment and
services of brokers / distributors are being engaged for equity only. The
empanelment of brokers / distributors should be reviewed on an annual
basis and Investment Committee shall consider the proposals and
approve the proposals for empanelment of brokers. TRMV to advise the
brokers of the empanelment and ensure conclusion of documentations,
as may be required.
10.2. Norms for empanelment of Brokers / Distributors
10.2.1. Equity segment
The Bank may at its discretion consider empanelment of brokers for

investment in capital markets from time to time for purchase and sale of
equity shares in the secondary market. The broad parameters for
empanelment of brokers shall be:
60
i. Profit earning firm with a minimum Net worth of `1.00 crore
Or
For firms making loss due to acquisitions/mergers and heavy

depreciation provisions, the minimum net worth should be `3.00
crores
ii. Should already be empanelled with at least 5 other banks / FIs/MFs,

etc.
iii. Income Tax Permanent Account Number
iv. SEBI Registration
v. Member of NSE/BSE
vi. The Broker should not be a defaulter to any stock exchange.
vii. The broker entity should not have any ongoing litigation or
arbitration with NSE, BSE or SEBI, as on the date of application by
the brokerage firm
10.2.2. Debt segment
As mentioned earlier, after the introduction of OMNDS, the Bank is not

engaging the services of brokers for debt segment any longer.
Accordingly, no separate norms are being fixed for empanelment of
brokers for debt segment. In case need for a broker for debt segment
arises in future, Bank would engage the services of the brokers already
existing in the panel.
10.3. The review of brokers / distributors shall be undertaken by the Mid

Office and placed before the Investment Committee for approval.
10.4. It should be ensured that a disproportionate part of the business is

not transacted through one or a few brokers. As per RBI guidelines,
the Bank should fix aggregate contract limits for each of the
approved brokers. A limit of 5% of total transaction (both purchase
and sales) during the year should be fixed as the limit for individual
brokers. The limit should cover both the business initiated by the
Bank as well as business brought / offered to the Bank by a broker.
RBI has clarified that the turnover limit may be exceeded with a
particular broker due to the following reasons:
i) If a particular broker offers better rate to the advantage of the

Bank during the remaining part of the year after touching 5% limit
in comparison with other brokers;
ii) It may not be possible to predict the total quantum of transactions

through the brokers in view of the volatility of the market.
10.5. It should be ensured that the transactions put through individual

brokers during a year normally do not exceed the limits fixed.
However, if for any particular reason it becomes necessary to exceed
61
the aggregate limit for any broker, the specific reason for the same
should be recorded, in writing, by the authority empowered to put
through the deals. The Board should also be post facto informed
about the same.
10.6. The business put through any individual broker or brokers in excess
of the limit, with the reasons for the same, should be covered in the
half-yearly review to the Board.
10.7. The Bank will monitor the broker exposure limits on a continuous
basis and exceeding, if any, over and above the stipulated 5% will be
placed before the Board, together with reasons, for post-facto
approval at the end of the financial year.
10.8. The Bank should not undertake security transactions on the broker’s
account. The broker cannot act as principal.
10.9. All the cheques/ PO/ Banker’s cheques drawn or received shall be in
the name of counterparty/concerned bank and never in the name of
broker or any of his representatives. Also such cheques shall not be
allowed for credit in brokers account for any reason.
10.10. As soon as a deal is finalized, the Bank shall insist upon the broker
for disclosure of counter party and the contract note should clearly
indicate the name of the concerned counter party.
10.11. The brokerage on the deal payable to the broker, if any, should be
clearly indicated on the notes/ memorandum put up to the competent
authority seeking approval for putting through the transaction.
10.12. The brokerage paid should be debited to a separate account head

and account of brokerage paid, broker-wise, should be maintained.
10.13. Inter-bank securities transactions should be undertaken directly with

the banks and FIs and services of brokers should not be engaged in
such transactions.
Exception:
i) The Bank may undertake securities transactions with other FIs or

with non-bank clients through members of the National Stock
Exchange (NSE), OTC Exchange of India (OTCEI) and the Stock
Exchange, Mumbai (BSE), where the transactions are more
transparent. Transactions with non-bank clients, if such
transactions are not undertaken on the NSE, OTCEI or BSE, should
be undertaken by the Bank directly, without use of brokers.
ii) Although the Securities Contracts (Regulation) Act, 1956 defines

the term ‘securities' to mean corporate shares, debentures, Govt.
securities and rights or interest in securities, for the purpose of
the aforesaid exception, the term ‘securities' would exclude
corporate shares. Further, the Provident/ Pension Funds and
Trusts registered under the Indian Trusts Act, 1882, will be
outside the purview of the expression `non-bank clients' for the
purpose of aforesaid exception.
62
10.14. Brokerage payable
10.14.1. Brokers are required to issue a contract note for all deals wherein
they have acted as broker between the two counterparties and
each contract note is to be stamped as per the prevailing Stamp
Act duly authorized by an authorised signatory. On a single day,
there may be more than one deal with one broker. Earlier brokers
were issuing separate contract notes for each deal. But now they
are issuing one contract note for all the deals of a client, settled
on a single date as per recommendations of FIMMDA.
10.14.2. FIMMDA has provided the legal opinion of solicitors on stamping

of Contract Note in its letter dated 27.02.02. The Contract Note
will be stamped as one instrument irrespective of the number of
trades contained in the Contract Note. The stamp duty payable
under Article 43(g) of the Bombay Stamp Act will be subject to a
ceiling of `1000/- if such Contract Note is in respect of trade/deal
in respect of Government Security for the entire Contract Note
and not `1000/- per trade.
10.14.3. Due to the Bank’s volumes being quite low, inspite of the
clarifications given by FIMMDA on stamping of Contract Notes as
above, the brokerage payable to Brokers will be as under:
Sr. No. Nature of brokerage Brokerage (upto)

1 Sale/ Purchase of T- Bills 0.25% of FV
2 Sale/ Purchase of G-Sec 0.40% of FV
3 Sale/ Purchase of Bonds `1000 per crore
4 Sale / Purchase of shares 0.15% of transaction
value(maximum)
10.14.4. The charges applicable for transactions put through OM-NDS and
NDS/TREPS systems shall be paid by the bank as decided by
Clearing Corporation of India Limited (CCIL) from time to time.
10.15. Chief General Manager, TRMV may approve the proposal to continue to
transact the business through such brokers / MF distributors till next
annual review, in the event of a change in the name of the firm/company
or in the constitution of the organisation on account of
restructuring/merger, so long as the management is effectively carrying
on the business.
10.16. In case there are adverse market reports about empanelled broker(s) /
distributor(s), the Front Office should bring it to the notice of the
Investment Committee and thereafter stop dealing with such broker(s)
/ distributor(s).
11. FOREX OPERATIONS
11.1. Resources
The present forex resources of SIDBI consist of funds raised from World
Bank, ADB, JICA, KfW, IFAD and AFD by way of Lines of Credit and grant
received from DFID.
63
11.2. Deployment
FC resources not utilised in foreign currency operations are swapped into

rupee / placed short term deposits with overseas branches of the banks to
meet the short term liquidity requirements / placed long term deposits with
banks with an arrangement of drawing equivalent rupee / used for
extending refinance assistance to banks in Foreign Currency, amortising the
schedule in line with underlying liability
11.3. Credit Deployment Policies
Assistance to SME clients under PCFC, EBF, FCTL is sanctioned by BOs

depending upon various parameters required for sanctioning such credit
limits. Besides, LOCFC to Banks and factoring companies, NBFC is also
sanctioned by Institutional Finance Vertical.
11.4. License
SIDBI has been granted permanent Authorised Dealer Category - III license
by RBI. The AD – Category License permits SIDBI to undertake various types
of activities in forex markets. A copy of the AD license is placed at Annexure
V. SIDBI can also undertake Cross Currency Interest Rate swaps and INR
Interest Rate Swaps for Asset Liability Management purpose.
11.5. Risk Management
After the integration of Domestic and Forex treasuries the counterparty /

bank wise exposures is being reckoned on an aggregate basis within the
annual exposure limits fixed by RiMV. Country limits have so far not been
fixed. For the present, FC deposits would be placed with branches of Indian
Banks abroad and with reputed international banks
12. AUDIT / REVIEW AND REPORTING
12.1. All treasury transactions (Money Market Operations and Forex) shall
be subjected to Concurrent Audit either by the Bank’s internal
auditors or by a firm of Chartered Accountants and audit report shall
be placed before the Chairman & Managing Director of the Bank on
monthly basis by AFMV. A copy of these audit reports should be sent
to the Regional Office of DBS, RBI located at Mumbai. The major
irregularities observed in the concurrent audit report of the treasury
transactions as also the position of compliance therewith should be
incorporated in the half-yearly reviews of the investment portfolio to
be submitted to the DBS.
12.2. Summary of Treasury Transactions / Income and Profit of Treasury

shall also be placed before the Chairman & Managing Director/
Deputy Managing Director on monthly basis. Physical verification of
Fixed Deposit Receipts will be conducted by the AFMV / firm of
Chartered Accountants at least on half yearly basis ending March and
September every year and a note shall be placed before the CMD /
DMD.
12.3. A half yearly review, as of September 30 and March 31, of investment

shall be placed before the Board of Directors which should, apart from
64
other operational aspects of investment portfolio, indicate and certify

adherence to the Investment Policy and procedures and Reserve
Bank guidelines. The review of investments should also cover the
following aspects of investment in non-Govt Debt securities:
a) Total turnover (investments/ disinvestments) during the reporting

period;
b) Compliance with the RBI mandated prudential limits as also those

prescribed by the Board for such investments;
c) Rating migration of the issues/securities held in the books and

consequent diminution in portfolio quality; and
d) Extent of non-performing investments in the fixed income

category
12.4. The review shall be placed before the Board within a month i.e. by
end of April and October. A copy of the review report placed before
the Board, shall be forwarded to the Regional Office of Department
of Banking Supervision (DBS) of the Reserve Bank located at Mumbai
by November 15 and May 15 respectively.
**************
65
Annexure – I (RBI Guidelines on SGL Accounts, Bank Receipts, Ready Forward

Contracts)
The Bank shall strictly comply with the guidelines issued by RBI from time to time
regarding Subsidiary General Ledger Accounts with RBI, Bank Receipts and Ready
Forward Contracts as per RBI Master Circular-Prudential Norms for Classification,
Valuation and Operation for FIs.
******
66
Annexure – II (Format for Appraisal - Subscription to Bonds/Debentures)

Lead Managers / Arrangers ___________
We have received an investment proposal as under:
Re. Subscription to ___________ bonds of ___________ to the tune of `

___________ crore to be held under AFS / HTM category.
1. Issue for consideration
To consider subscription to ___________ bonds of on private placement basis

to the tune of ` ___________ crores to be held under AFS/HTM category.
2. Terms of the Issue
Issue Size ` ___ crore with an option to retain over

subscription
(total issue size ` ______ crores)
Issue objects
Credit rating (External)
Face Value
Minimum amount of
subscription
Credit Enhancement
Nature of Instrument Cumulative/Non-cumulative/Non-convertible
bonds in the nature of debenture
Tenor Option I Option II Option III
Coupon
Redemption
Put/call option
Interest Payment
Listing
Trustees
Deemed Date of Allotment
Issue opens on
Issue closing date
Interest on application
money
3. Internal Credit Rating
4. Background of the Issuer
5. Caution List & Defaulters list
The name of the company, promoters and associate concerns appear / do not
appear in the Caution Advice List, RBI Defaulters List and CIBIL list issued by RBI
from time to time.
67
6. Management Capability & Experience
___________ has a large pool of talent managing the operations. The profile
is given as under :
Name & Age Qualification Date of expiry Particulars

Sl. Designation & of current term of other
No. Experience directorship
7. Financial Highlights
(` crore)
Particulars 2008-09 2009-10 2010-11 2011-12
Authorised capital
Paid up capital
Reserves less
losses
Networth
Current assets
Current liabilities
Capital Employed
Working capital
Statement of Profit and Loss

(` crore)
For the year ended March 2009 March 2010 March 2011 March 2012
Income
Sales
Closing stock
Claims
Miscellaneous Income
Interest received
Total Income
Expenditure
Opening stocks
Purchases
Salary & wages
Staff welfare
Rent
taxes
Insurance
Power, fuel, etc.
Interest expenses
Depreciation
Total Expenditure
Profit/Loss
8. Coupon (under option _____ )
68
Tenure : ___________
Coupon offered : ___________
G-Sec yield for the similar maturity : ___________ (semi annual)
: ___________ (annualised)
FIMMDA/FBIL spread for AAA rated bonds : ___________
Suggestible coupon : ___________
In the coupon offered i.e. ___________ a spread of ___________ bps is available
over the G-Sec yield of similar tenure. The coupon offered, therefore,
appears attractive/unattractive.
9. Bank’s Exposure
10. Risk / return analysis
11. Observations
i. The issue is rated___________ by ___________

ii. Yield on the bonds seems to be attractive in the current market scenario.
iii. The company has a good track record.
12. RBI Guidelines / Investment policy
13. Submission
AM / M AGM DGM GM
*******
69
Annexure III (Guidelines for functioning of the Sub-Committee for secondary equity
market operations)
(i) Exposure to secondary market

The Investment Policy allows secondary market trading in equity shares to
the extent of 5% of net-worth of the Bank as on March 31 of the previous
year. The maximum cap for secondary market exposure would be `50 crore
at any point of time.
(ii) Sectoral Limits

To put in place a system of checks and balances, out of the limit allowed for
exposure in secondary market operations, exposure to a single sector would
be limited to 33% of the total exposure to secondary market at any point of
time.
(iii) Group exposure

Group-wise exposure would be limited to 33% of the limit.
(iv) Scrip-wise limits

Companies in each potential sector would be identified for investment
based on volumes traded, PE ratio vis-à-vis industry average, EPS, price
movements and future prospects. Investment in individual scrip shall not
exceed, at any point of time, 20% of the corpus allowed under the policy for
the purpose.
(v) Profit booking and Stop loss

In order to avoid capital erosion in case of sustained bear run and / or to
realise gains in a bull run, Investment Committee may fix a sell target for
each scrip as well as set a stop loss limit based on percentage appreciation
/ depreciation. Presently, maximum limit of upto 15% appreciation is fixed
for profit booking and upto 15% depreciation is fixed for stop loss. The Sub-
Committee is permitted to recommend booking profits and cutting losses
within this limit. Exceptions, if any, would be allowed with prior approval of
IC.
(vi) Averaging the price of acquisitions

Even if stop loss limits is put in place, in a volatile market, prices of
fundamentally good scrips may depreciate but not trigger the stop loss
limits. In such cases, if the Sub-Committee is of the opinion that these scrips
are fundamentally strong and have the potential to bounce back, the stock
could be bought at lower levels. This would enable Bank to reduce the cost
of acquisition, thereby giving an opportunity to exit at lower levels.
(vii) Monthly reporting and monitoring

The Sub-Committee would report to the Investment Committee the
performance of the Secondary Market operations on a monthly basis.
******
70
Annexure IV (Recommended Accounting Methodology for Accounting of Repo /

Reverse Repo transactions)
The Bank shall strictly comply with the guidelines issued by RBI from time
to time regarding Accounting Methodology for Accounting of Repo / Reverse Repo
transactions as per RBI Master Circular-Prudential Norms for Classification,
Valuation and Operation for FIs.
71
Annexure V (AD Licence)
RESERVE BANK OF INDIA

FOREIGN EXCHANGE DEPARTMENT
MUMBAI REGIONAL OFFICE
AMAR BHAVAN, P.M. ROAD
MUMBAI 400 001.
FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (42 OF 1999)
LICENCE NO.04/2001
In exercise of powers conferred by Section 10 of the Foreign Exchange

Management Act, 1999 (42 of 1999) Reserve Bank of India hereby authorises Small
Industries Development Bank of India as an Authorised Dealer – Category III subject
to the conditions laid down hereunder :
1. Only activities specifically permitted by reserve Bank shall be undertaken.

The list of activities that may be undertaken is given in Annex I of this
license.
2. All eligible foreign exchange transactions shall be carried out in accordance

with the relevant provisions of Foreign Exchange Management Act or Rules,
Regulations, Notifications, Directions or Orders made thereunder from time
to time.
3. The statement and/or returns as prescribed from time to time shall be

submitted promptly and at the prescribed periodicity.
4. Besides the Bank’s power to inspect the business of Small Industries

Development Bank of India, the Bank may conduct periodical inspection
with a view to assess the continuance of this license.
Dated this 27th day of June 2006.
Sd/-
[Ipilan Surin]
General Manager
RESERVE BANK OF INDIA
FOREIGN EXCHANGE DEPARTMENT
MUMBAI REGIONAL OFFICE
MUMBAI 400 051
72
ANNEX
1. Undertake foreign exchange transactions relating to foreign currency

borrowing/lending debt servicing and trade finance (both fund and non-fund
based) which are incidental to the normal functions permitted under the
Memorandum and Articles of Association.
2. Maintenance of foreign currency accounts with banks, correspondents abroad

for putting through permitted foreign exchange transactions.
3. Investment of surplus foreign currency balances in accordance with RBI/GoI

guidelines in force
4. Buy/sell foreign exchange in the domestic as well as international market in

cover of transactions which are incidental to permitted foreign exchange
transactions.
5. Enter into forward contracts and other risk management products on behalf
of clients as also for own balance sheet management.
6. Maintain open exchange/gap positions arising on account of the above

transactions upto the limits approved by the management and the Reserve
Bank.
7. Offer long dated foreign currency-rupee swaps to clients/non-clients subject

to conditions placed in this regard by the Reserve Bank.
8. Availing of temporary overdrafts from correspondent banks for activities

related to negotiation of payment under the letter of credit and other
payments etc.
9. Undertake foreign currency rupee sell/buy swaps subject to the conditions

prescribed by the Reserve Bank.
10. Extend pre and post-shipment credit facility
11. Any other activity under special permission issued by the Reserve Bank.
12. While lending / deploying funds in any foreign currency, it shall be ensured
that the repayment of foreign currency loans to international lenders is made
as per schedule. Repayment of loans to the lenders abroad shall be made out
of (i) repayments received from borrowers in India, or (ii) maturity proceeds
of funds deployed in India, or (iii) foreign currency balances held abroad;
under no circumstances shall repayment of loan be made by borrowing foreign
exchange in India / accessing the forex market without prior permission from
Reserve Bank, except to the extent it is necessitated due to default in
repayment by borrowers in India.
13. Adhere to FEDAI guidelines, wherever applicable.
********
73
Annexure VI (Sectoral Exposure Caps)
Sectoral Exposure Caps

(including Non-Govt Debt Securities)–2020
(As per Annexure-III-Loan Policy – 2020)
74

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7 Investment Policy

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Item No.

MEMORANDUM TO THE RISK MANAGEMENT COMMITTEE

Review of Investment Policy – FY 2021

Vertical Head: Shri Manish Sinha

Small Industries Development Bank of India [Manish Sinha]

For Senior CGM Committee

Page Pre-revised Clause Revised Clause Remarks

Page Pre-revised Clause Revised Clause Remarks

Page Pre-revised Clause Revised Clause Remarks

Page Pre-revised Clause Revised Clause Remarks

Page 43 3.2.3. Reporting requirements Deleted

Page Pre-revised Clause Revised Clause Remarks

ii) Any default relating to

iii) The Bank should also report

iv) Since Credit Information

Page Pre-revised Clause Revised Clause Remarks

Page 46 Secondary Market Secondary Market This is an enabling clause in

Page Pre-revised Clause Revised Clause Remarks

(ii) the difference between the accrued interest paid between

Page Pre-revised Clause Revised Clause Remarks

Page Pre-revised Clause Revised Clause Remarks

Page Pre-revised Clause Revised Clause Remarks

Page Pre-revised Clause Revised Clause Remarks

i) The firm shortlisted, should

ii) AMFI registration

iii) Income Tax Permanent

Small Industries Development Bank of India

7.6. Shifting among categories ........................................................................... 24

4.2. Accounting and Valuation of STRIPS ......................................................... 51

1.4. The Board of Directors (BoD) is at the apex of Risk Management

2.4. Investment operations will be conducted in accordance with sound and

2.5. The IP may be reviewed comprehensively annually. Any major changes

2.7. Treasury officials handling investment operations have to be fully

gaps in the knowledge will be effectively filled by providing appropriate

The main objectives of investment operations based on the guiding principles

3.2. To conduct the investment function within the framework of this

3.4. To actively participate in secondary market operations to provide to the

3.5. To pursue diversification as a risk reduction strategy in all possible ways

5. PRUDENTIAL NORMS FOR INVESTMENTS / BORROWING

The prudential norms in respect of investments in various instruments in which

5.1. Money Market Operations

5.1.1. Triparty Repo Dealing and Settlement (TREPS)

Triparty Repo is a repurchase transaction in which the management of

i) RBI has authorised the Clearing Corporation of India Limited (CCIL)

ii) CCIL commenced acting as Triparty Repo Agent (TRA) and

5.1.2. Reverse Repo

i) The Bank is allowed to lend in the money market against notified

5.1.3. Ready forward transactions (Repo)

iii) No sale of the repoed securities can be made without having

iv) Bank is allowed to undertake tri-party repo transactions in eligible

i) Deposits can be placed only with Public and Private Sector

ii) Upto two days window is allowed to receive quotations from

5.1.5. Commercial Paper

i) Eligible issuers, whose total CP issuance during a calendar year is

ii) The minimum investment grade for investment proposed to be

iii) All Over-The-Counter(OTC) trades in CP shall be reported within 15

iv) Over-The-Counter(OTC) trades in CP shall be settled through the

5.1.6. Certificate of Deposit

i) CDs being bulk deposits, in terms of Section 16 of SIDBI Act effective

ii) All Over-The-Counter (OTC) trades in CDs shall be reported within

iii) All Over-The-Counter (OTC) trades in CDs shall necessarily be

5.2. Investment in Mutual Funds

i. The bank may invest in different schemes of various Mutual Funds