ICICI Bank was on Thursday slapped with a Rs 589-million penalty by the Reserve Bank of India (RBI) for selling bonds from the lender's Held To Maturity (HTM) category.
Bonds in the HTM category are kept for redemption at the end of maturity and are not for the purpose of trading.
Therefore, these bonds don’t attract 'Mark to Market' losses (MTM), which is a practice of valuing bonds at their prevailing market rates and not at historical prices.
There are other two portfolios in bonds —Available for Sales (AFS) and Held for trading (HFT) that are used for trading purpose and therefore are liable for MTM linked valuation.
The RBI allows banks to shift from one basket to the other once a year, typically at the beginning of the financial year.
The HTM category is maintained as a measure of bank’s solvency. At least 20 per cent of a bank’s deposit must be held in bonds in HTM category.
Selling directly from HTM, therefore, is a violation of regulations.
“This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” the RBI said in its statement.
In a statement, the bank said that it had sold from HTM category over and above the permissible limit, “due to a genuine misunderstanding.”
“ICICI Bank gives utmost importance to regulatory compliance and ensuring compliance with all directives, guidelines and observations by RBI,” it said in its statement.
The bank said a bank can sell from HTM category, but if the value of sales of securities from HTM category exceeds 5 per cent 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, the bank said.
The bank “continued with the sales from HTM category for a few weeks during the quarter ended March 31, 2017, on the timing of the applicability of RBI’s direction in this matter.”
The bank had disclosed in its annual report for FY2017 that it had sold more than 5 per cent of investments categorised as HTM. However, the Bank had not made the specified additional disclosure at that time. The Bank has subsequently been making the specified disclosure since the quarter ended June 30, 2017.
In the current financial year, ICICI Bank has sold less than 5 per cent of securities from its HTM portfolio, it said.
Bonds in the HTM category are kept for redemption at the end of maturity and are not for the purpose of trading.
Therefore, these bonds don’t attract 'Mark to Market' losses (MTM), which is a practice of valuing bonds at their prevailing market rates and not at historical prices.
There are other two portfolios in bonds —Available for Sales (AFS) and Held for trading (HFT) that are used for trading purpose and therefore are liable for MTM linked valuation.
The RBI allows banks to shift from one basket to the other once a year, typically at the beginning of the financial year.
The HTM category is maintained as a measure of bank’s solvency. At least 20 per cent of a bank’s deposit must be held in bonds in HTM category.
Selling directly from HTM, therefore, is a violation of regulations.
“This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” the RBI said in its statement.
In a statement, the bank said that it had sold from HTM category over and above the permissible limit, “due to a genuine misunderstanding.”
“ICICI Bank gives utmost importance to regulatory compliance and ensuring compliance with all directives, guidelines and observations by RBI,” it said in its statement.
The bank said a bank can sell from HTM category, but if the value of sales of securities from HTM category exceeds 5 per cent 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, the bank said.
The bank “continued with the sales from HTM category for a few weeks during the quarter ended March 31, 2017, on the timing of the applicability of RBI’s direction in this matter.”
The bank had disclosed in its annual report for FY2017 that it had sold more than 5 per cent of investments categorised as HTM. However, the Bank had not made the specified additional disclosure at that time. The Bank has subsequently been making the specified disclosure since the quarter ended June 30, 2017.
In the current financial year, ICICI Bank has sold less than 5 per cent of securities from its HTM portfolio, it said.
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