Shifting Among Categories in the Investment Portfolio of UCBs

Shifting Among Categories in the Investment Portfolio of UCBs

Shift to/from HTM

Urban Co-operative Banks (UCBs) can move investments to or from the Held to Maturity (HTM) category. This requires approval from the Board of Directors and can be done once a year, at the start of the accounting year. Once a shift is made, no further shifts to or from HTM are allowed during that year. When moving securities from Available for Sale (AFS) or Held for Trading (HFT) to HTM, use the lower of book value or market value. If the market value is higher, use the book value. If it’s lower, adjust the book value to match the market value, accounting for any depreciation.

For transfers from HTM to AFS/HFT, follow these rules:

  1. Securities bought at a discount under HTM are moved at their acquisition price or book value.
  2. Securities bought at a premium under HTM are moved at their amortized cost.
  3. After moving securities, revalue them and account for any depreciation.

Note that for securities in HTM bought at a discount, don’t accrue the discount. Keep them at acquisition cost until maturity.

UCBs generally shouldn’t sell HTM securities. If necessary due to liquidity issues, they can do so with Board approval and must record the reasons.

For any transfers to/from HTM, UCBs need to disclose this in their financial statement notes as specified in the RBI’s 2021 Directions.

Shift from AFS to HFT or Vice Versa

UCBs can move investments from AFS to HFT with Board approval. In urgent situations, the Chief Executive can approve the shift, but the Board must ratify it later. Moving investments from HFT to AFS is usually not allowed, except in special cases like tight liquidity or extreme market conditions. This requires Board or Investment Committee approval.

When transferring securities between AFS and HFT, there’s no need to revalue them on the transfer date. Any existing provisions for depreciation should be adjusted accordingly.

Investment Portfolio of Primary (Urban) Co-operative Banks

Classification of Investments

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