RBI proposes relaxing key investment class rules

The Reserve Bank of India has proposed modifications to the valuation of bank investments, including loosening limits on a major class of long-term investments that are protected from frequent valuation changes while tightening rules on transferring securities across classes.

A discussion paper released late Friday by the Reserve Bank of India proposes lifting limitations on the Kept-To-Maturity (HTM) class of assets and allowing more types of instruments to be held inside it. Under the proposed restrictions, however, banks will not be permitted to sell more than 5% of their interests in this class per year, with some exceptions.

The proposed framework would take effect on April 1, 2023, according to the discussion paper.

It also suggested that the local accounting watchdog update its present stringent guidelines on derivatives treatment, which the central bank will subsequently require banks to adhere to. Current rules, according to the report, may have stifled the growth of the rate and credit derivative markets.

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