New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    The Reserve Bank of India (RBI) has revised investment

    norms for commercial banks, making it more rigid as it created a new category namely – fair value through profit and loss (FVTPL). Consider the following statements with respect to the information provided- I.  From April 1, 2024, banks will classify their entire investment portfolio (except investments in their own subsidiaries, joint ventures and associates) under three categories - held to maturity , available for sale , and fair value through profit and loss . II. Sale of investments from the HTM category in any financial year should not exceed 10 percent of the opening carrying value of the HTM portfolio. III.The banks should create an investment fluctuation reserve (IFR) until the amount of IFR is at least 2 per cent of the AFS and FVTPL (including HFT) portfolio, on a continuing basis. Which of the following statements is/are incorrect?
    A Only I Correct Answer Incorrect Answer
    B Only I & II Correct Answer Incorrect Answer
    C Only II Correct Answer Incorrect Answer
    D Only II & III Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    The Reserve Bank of India (RBI) has revised investment norms for commercial banks, making it more stringent as it created a new category namely – fair value through profit and loss (FVTPL).  The held for trading (HFT) will now be a separate investment subcategory within FVTPL.    From April 1, 2024, when these new norms come into effect, banks will classify their entire investment portfolio (except investments in their own subsidiaries, joint ventures and associates) under three categories - held to maturity (HTM), available for sale (AFS), and fair value through profit and loss (FVTPL).   Importantly, sale of investments from the HTM category in any financial year should not exceed 5 per cent of the opening carrying value of the HTM portfolio. Any sale beyond this threshold will require the RBI’s approval.    The banks should create an investment fluctuation reserve (IFR) until the amount of IFR is at least 2 per cent of the AFS and FVTPL (including HFT) portfolio, on a continuing basis, by transferring to the IFR an amount not less than the lower of the net profit on sale of investments during the year or net profit for the year, less mandatory appropriations.    IFR will be eligible for inclusion in Tier II capital to address the systemic impact of sharp increase in yields in government securities.

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