RBI allows UCBs to shift securities before Mar 31

Mumbai, March 29 | Updated: Mar 30 2006, 05:30am hrs
As a response to the representation made by the federations of urban cooperative bank (UCBs), the Reserve Bank of India (RBI) has issued a notification on classification and valuation of investments, on Wednesday. UCBs have made this representation as they are facing difficulties in meeting the provisioning requirements as a result of a further fall in the prices of securities.

The RBI has decided that as a special case the UCBs may shift securities from and to held to maturity (HTM) category once more on or before March 31, 2006. At present they are allowed to shift securities from and to HTM category once at the beginning of the year.

Currently UCBs are required to shift securities to HTM at the acquisition cost/book value/ market value on the date of transfer, whichever is the least. The UCBs are required to crystallise the provisioning requirement arising on account of such shifting of securities among the categories and amortise the same over a maximum period of five years with a minimum of 20 % of such amount, each year.

Now, RBI has said that where the market value is lower than the face value, the provision required would be the difference between book value and face value. Further, the provisioning may be made over the remaining period to maturity, instead of five years. After considering the above-mentioned valuation if provision held by the bank is rendered surplus, it should not be taken to the profit and loss account, says RBI.