The Hindu Business Line : RBI relaxes norm for G-Secs held by PDs

In a notice issued on Monday, the Reserve Bank of India said that standalone PDs can classify up to 100 per cent of their paid-up capital as at end March of the preceding financial year, as HTM. This relaxation has been permitted only up to March 2010.

Until now PDs were required to keep their entire holdings in the trading book and mark-to-market periodically. While net depreciation was to be provided for, net appreciation, was ignored.

The RBI notice said the transfer of securities to or from HTM should be done according to the policy formulated by the Board. Such transfers should be done with the approval of the Board, at the acquisition cost or book value or market value on the date of transfer, whichever is the least. The depreciation, if any, on such transfer should be fully provided for.

Only securities acquired by the PD under primary auction will be eligible for classification under HTM, the RBI said.

While PDs welcomed the RBI move, they said it is a short-term measure and may provide only a limited relief.

According to an official with a leading PD, this move will serve the purpose only when interest rates have peaked out. “It makes sense to shift the G-Sec to HTM only when you know that interest rates will not rise. If interest rates are likely to rise further, why will anyone lock up the G-Secs in HTM? We would rather go short,” he said.

The amount that PDs have been allowed to shift is small as it is the paid-up capital of the standalone, pointed out the head of a PD.

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