Classification of Investments

Classification of Investments

Categorization of Investments

Urban Co-operative Banks (UCBs) must organize their investment portfolio, including both SLR and non-SLR securities, into three groups: ‘Held to Maturity’ (HTM), ‘Available for Sale’ (AFS), and ‘Held for Trading’ (HFT). They should decide which category an investment belongs to when they acquire it and record this decision.

Held to Maturity (HTM)

  1. Securities that banks plan to keep until they mature are in the HTM category.
  2. HTM investments can’t be more than 25% of the bank’s total investments.
  3. Certain securities are suitable for the HTM category:
  4. SLR securities within allowed limits.
  5. Non-SLR securities that were in HTM before September 18, 2007.
  6. Long-term bonds from infrastructure companies, with at least seven years left until they mature. These can stay in HTM even if their remaining maturity drops below seven years later.
  7. UCBs can exceed the 25% limit for HTM investments if the extra consists of:
  8. SLR securities, but these shouldn’t be over 25% of the UCB’s Net Demand and Time Liabilities (NDTL) as of the last Friday of the second preceding fortnight.
  9. Investments made under Targeted Long-term Repo Operations (TLTRO) as specified by the Reserve Bank of India.
  10. Profits from selling HTM investments go to the Profit and Loss account and then to the ‘Capital Reserve’. This amount is after taxes and statutory reserve transfers. Losses are recognized in the Profit and Loss account in the year of sale.

Held for Trading (HFT) and Available for Sale (AFS)

  1. Securities bought to profit from short-term price or interest rate changes are in the HFT category. These should be sold within 90 days.
  2. Securities that aren’t in HTM or HFT fall into the AFS category.
  3. UCBs can decide how much to invest in AFS and HFT. They should consider their intent, trading strategies, risk management, tax planning, staff skills, and capital position.
  4. Profits or losses from selling HFT and AFS investments are recorded in the Profit and Loss Account.

Investment Portfolio of Primary (Urban) Co-operative Banks

Shifting Among Categories in the Investment Portfolio of UCBs

Valuation of Investments of Urban Co-operative Banks

Investments in Government Securities by Urban Co-operative Banks

Investment in Non-SLR Securities by Urban Co-operative Banks

Placement of Deposits with Other Banks/Institutions by Urban Co-operative Banks

Accounting and Provisioning by Urban Co-operative Banks

Restrictions on holding shares in other Co-operative Societies