ICICI Bank Fined 58.9 Cr for Non-compliance of RBI Regulatory Directtions

Banks hold debt securities in three categories, including held-to-maturity, available-for-sale (AFS) and held-for-trading (HFT).

Banks are allowed to include investments included under ‘Held to Maturity’ category up to 25   percent of their total investments.

Securities acquired with the intention of being held till maturity are classified under HTM.

If the value of sales of securities from HTM category exceeds 5% of the HTM investments, banks are required to disclose in the audited annual financial statements the market value of the HTM investments and indicate the excess of book value over market value.

Under RBI guidelines banks have to split their holding of government securities into `held-to-maturity’ (HTM) and available for `available-for-sale’ category. If the market value of bonds in the HTM category falls (due to an increase in interest rates in the market) banks do not need to make provisions. The rationale is that since banks are mandatorily required to invest certain part of their deposits in government bonds they will not be selling any bonds in this category and therefore there is no market loss. Banks are however required to make provisions for losses in the market value of bonds in the AFS category since this is their trading or liquid portfolio.

Under the existing RBI regulations, banks may shift investments to/from HTM with the approval of the board of directors once a year and such shifting will normally be allowed at the beginning of the accounting year. These are the RBI guidelines which need to be adhered by the banks.

The Reserve Bank of India imposes monetary penalty for violation of regulatory directions / instructions and guidelines.

A recent example: The Reserve Bank of India has imposed through an order dated March 26, 2018, a monetary penalty of Rs589 million (or Rs58.9 crore) on ICICI Bank Ltd (the bank) for non-compliance with directions issued by RBI on direct sale of securities from its held-to-maturity portfolio and specified disclosure in this regard.