{"id":260031,"date":"2023-09-14T20:57:57","date_gmt":"2023-09-14T15:27:57","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=260031"},"modified":"2023-09-14T20:57:57","modified_gmt":"2023-09-14T15:27:57","slug":"banking-investments-new-norms-will-impart-stability","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/banking-investments-new-norms-will-impart-stability\/","title":{"rendered":"Banking investments \u2013 New norms will impart stability"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article\u00a0\u201cBanking investments \u2013\u00a0New\u00a0norms will impart stability<\/strong>\u201d published in Business Standard <\/strong>on\u00a014th<\/sup> September 2023<\/strong>.<\/p>\n

Syllabus: GS 3 \u2013 Indian Economy \u2013 Banking Sector<\/strong><\/p>\n

Relevance: <\/strong>RBI\u2019s new guidelines for investment in the banking sector.<\/strong><\/p>\n

News: <\/strong>The Reserve Bank of India (RBI) has recently released updated investment norms for the banking sector, aiming to enhance regulatory oversight.<\/p>\n

The new framework aligns with global standards and best practices, aiming for a balanced approach to recognizing gains and losses in fair value.<\/p>\n

About the New Guidelines<\/strong><\/p>\n

The new guidelines require banks to categorize their entire investment portfolio into three categories:<\/strong> Held-to-Maturity (HTM), Available for Sale, and Fair Value through Profit and Loss (FVTPL).<\/p>\n

This will exclude investments in joint ventures and subsidiaries while securities held for trading will fall under the FVTPL subcategory.<\/p>\n

The new framework introduces a dedicated trading book for banks and eliminates the previous limit on the held-to-maturity (HTM) portion of the investment portfolio.<\/p>\n

This change will give banks more flexibility in managing their investments, boosts demand for corporate bonds, and improve earnings stability.<\/p>\n

However, banks must be cautious with their investment portfolios under the new rules, as freely moving securities in and out of the Held-to-Maturity (HTM) category won’t be allowed.<\/p>\n

Reclassification will be strict, needing approvals from the bank’s board and the RBI, which will be seldom granted<\/strong>.<\/p>\n

Additionally, in any fiscal year, the sale of HTM securities cannot exceed 5% of the portfolio’s opening value without RBI approval.<\/strong><\/p>\n

The new framework also includes<\/strong> detailed rules for securities transfers between categories and clear guidelines for categorizing and valuing securities.<\/p>\n

Banks must establish an investment fluctuation reserve, which can be included in Tier-II capital and enhances the banking system’s capacity to absorb losses.<\/p>\n

Overall, <\/strong>this framework is expected to enhance disclosure, contributing to greater stability in the banking system.<\/p>\n

Why were the new guidelines needed?<\/strong><\/h2>\n

The current regulations for valuing investments in banks have been old and in place since 2000.<\/p>\n

Further, RBI\u2019s decision to come up with new guidelines has been due to the lessons learnt from the US,<\/strong> where inadequate investment regulation contributed to bank crises.<\/p>\n

Although Indian banks aren’t facing the same risks, revising the regulatory framework based on experience will improve the Indian banking regulatory structure.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article\u00a0\u201cBanking investments \u2013\u00a0New\u00a0norms will impart stability\u201d published in Business Standard on\u00a014th September 2023. Syllabus: GS 3 \u2013 Indian Economy \u2013 Banking Sector Relevance: RBI\u2019s new guidelines for investment in the banking sector. News: The Reserve Bank of India (RBI) has recently released updated investment norms for the banking… Continue reading Banking investments \u2013 New norms will impart stability<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216,8184],"class_list":["post-260031","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","tag-indian-economy","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/260031","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=260031"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/260031\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=260031"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=260031"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=260031"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}