RBI Gives Banks More Time To Bring HTM Bond Holdings Within Original Limit

The RBI has now granted banks additional time and also laid out a phased approach for reduction.

<div class="paragraphs"><p>The headquarters of the Reserve Bank of India in Mumbai. (Source: BQ Prime)</p></div>
The headquarters of the Reserve Bank of India in Mumbai. (Source: BQ Prime)

The Reserve Bank of India has granted banks some breathing room by pushing back the end of a special provision for held-to-maturity bonds that qualify under the statutory liquidity ratio.

While banks are currently allowed to hold such HTM bonds up to the limit of 23% of net time and demand liabilities, the special provision was supposed to end by March 31, 2023. This would have required banks to bring down the ratio to 19.5% of NDTL.

The RBI has now granted them additional time till up to March 2025 to bring it down in a phased manner, according to a notification issued by the central bank.

Banks have also been allowed to include securities acquired between Sept. 1, 2020 and March 31, 2024 under the enhanced limit of 23%.

Banks bucket securities they hold into three distinct categories: available for sale, held for trading, and held to maturity. While the first two categories have to be priced according to the market, HTM is protected from that and can help cushion a bank's bottom line.

The extension has been granted to help banks "better manage their investment portfolios, Saurav Sinha, executive director at RBI, said during a press conference on Dec. 8. Extending the date will enable a smooth process for the banks as they wind down some of their investments under the bucket, he added.

Excess SLR securities acquired by banks between Sept. 1, 2020, and March 31, 2024, would need to be reduced in the following ways:

  • Maximum 22% of NDTL as on June 30, 2024

  • Maximum 21% of NDTL as on Sept. 30, 2024

  • Maximum 20% of NDTL as on Dec. 31,2024

  • Maximum 19.5% of NDTL as on March 31, 2025