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RBI released Discussion Paper

The new bank portfolio classification norms

Discussion paper - ‘Review of Prudential will come into effect from 1 April 2023, the
Norms for Classification, Valuation and paper said, while inviting comments on a
Operations of Investment Portfolio of discussion paper from stakeholders by 15
Commercial Banks’ February.

RBI said the investment portfolio of banks

shall now be divided into three categories—
held to maturity (HTM), available for sale
(AFS) and FVTPL.
 Why was there a need to bring the Discussion Paper

There have been significant Aiming to align the investment

Comprehensive review has not portfolio of banks with the
developments in the global
been undertaken so far, global prudential framework
prudential framework, accounting
resulting in a wide gap between and accounting standards, the
standards as well as in the
our norms and the global RBI proposed new norms for
financial markets-both domestic
standards and practices. their classification and
and global in the last two
decades. valuation.

The extant instructions pertaining to the prudential norms on the

classification and valuation of the investment portfolio are largely based on
the Report of Informal Group on Valuation of Banks’ Investment Portfolio,
which was submitted in 1999.

Only debt instruments with fixed
or determinable payments and
fixed maturity with the intent of
holding till maturity shall be
classified under HTM.
Banks shall carry equity
investments in their subsidiaries,
joint ventures and associates only
at cost under HTM
Proposed Norms
FVTPL is the residual category.
Investments in SRs, mutual funds, The paper said that debt
alternate investment funds, instruments held by a bank till
equity shares (excluding certain maturity or sold before maturity
exceptions), derivatives etc. which would be eligible for AFS. Banks
do not have any contractually shall also have the irrevocable
specified periodic cash flows that option to classify equity
are solely payments of principal investments at initial recognition
and interest on principal under AFS.
outstanding shall be classified as
FVTPL.
 MCQs for Practice

Q. Recently (January 2022), RBI has released Discussion paper - ‘Review of Prudential Norms for
Classification, Valuation and Operations of Investment Portfolio of Commercial Banks’. According to the
norms proposed in this DP the investment portfolio of banks will be divided into three categories. Which
of the following is not the name of any of the 3 categories?
1. Available For Sale
2. Held to maturity
3. Held For Trading
4. Fair value through profit and loss account
5. None of the Above
Q. Recently (September 2021) NARCL was launched by the
Union Cabinet approving the government guarantee on
security receipts to buy bad loans of lenders. It has been
incorporated under the Companies Act and has applied for
license from RBI. What does R stand for in NARCL?

1. Resolution
2. Reconstruction
3. Restructuring
4. Revenue
5. None of the Above