RBI/2004-05/403
UBD(PCB). Cir.41/16.20.00/2004-05
March 28, 2005.
The Chief Executive Officers of All Primary (Urban) Co-operative
Banks
Dear Sir/Madam,
Investment portfolio of Urban Co-operative
Banks (UCBs) - Classification and Valuation of Investments
Please refer to our circular UBD.PCB.
No.16/16.20.00/2004-05 dated 02.09.2004 on the captioned subject wherein,
UCBs were permitted, as a one time measure to shift SLR securities to the HTM
category any time, once more, during the current accounting year provided the
total SLR securities held in the HTM category is not more than 25 per cent of
their NDTL as on the last Friday of the second preceding fortnight as compared
to the earlier limit of 25 per cent of the bank’s total investments. Banks were
also advised that such shifting should be done at the acquisition cost/book
value/ market value on the date of transfer, whichever is the least, and the
depreciation, if any, on such transfer should be fully provided for.
2. In view of the representations received
from the Federations of UCBs on account of the difficulties faced by the UCBs
in meeting the provisioning requirements, the matter has been reviewed and it
has been decided as a special case, to consider relaxing the above provisioning
requirements, as under:
I. Scheduled UCBs:
Scheduled UCBs may crystallize the provisioning
requirement arising on account of shifting of securities from HFT/AFS categories
to the HTM category consequent to the issue of our guidelines dated 02.09.2004
and amortize the same over a maximum period of five years commencing from
the current accounting year ending 31.03.2005, with a minimum of 20 % of such
amount, each year.
II. Non Scheduled UCBs:
Shifting of securities from HFT/AFS categories
to the HTM category by Non-Scheduled UCBs consequent to the issue of our circular
dated 02.09.2004 may be done at book value, subject to the following conditions:
a. In case the book value is higher
than the face value, the difference between the book value and the face
value i.e., the premium may be amortized in equal installment over the period
remaining to maturity. If the security was obtained at a discount to face
value, the difference should be booked as profit only at the time of maturity
of the security.
b. The securities transferred under
this special dispensation should be kept separately under the HTM category,
and should not be transferred back to the AFS/HFT category in future as
per the existing instruction of transfer of securities from HTM category.
c. In normal course such securities
under HTM should not be sold in the market and are to be redeemed on maturity
only. However, in case of exceptional circumstances if such securities are
to be sold, profit on sale of investments in this category should be first
taken to the Profit & Loss Account and thereafter be appropriated to
the ‘Capital Reserve ’. Loss on sale will be recognized in the Profit &
Loss Account in the year of sale.
d. The banks are advised to build up
sufficient provisions and should adhere to extant investment norms for UCBs
without any relaxations by 31.03.2009.
3. It is further advised that the above relaxation
is a one time measure for the current accounting year and for all future fresh
investments made on or after 01.04.2005, existing guidelines may continue to
be followed. Also, the banks are not allowed to write back provisions already
made on investments as on 31.03.2004.
4. Please acknowledge receipt to the concerned Regional Office
of the Reserve Bank of India.
Yours faithfully,
(K.R Ananda)
Chief General Manager-in-charge
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