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It has been decided to grant banks the option to spread
provisioning for mark to market (MTM) losses on investments held in AFS and HFT
for the quarters ended December 31, 2017 and March 31, 2018. The provisioning may
be spread equally over up to four quarters, commencing with the quarter in
which the loss is incurred.
Banks choosing the above option shall make suitable disclosures in
their notes to accounts/ quarterly results providing details of
·
the provisions
for depreciation made during the quarter/year and
·
the
balance required to be made in the remaining quarters.
All banks are advised to create an Investment Fluctuation Reserve
(IFR) with effect from the year 2018-19, as under:
An amount not less than the lower of the following:
·
net
profit on sale of investments during the year
·
net
profit for the year less mandatory appropriations
shall be transferred to the IFR, until the amount is at least 2 %
of the HFT and AFS portfolio, on a continuing basis. This should be achieved
within a period of 3 years where feasable.
A bank may, at its discretion, draw down the balance available in
IFR in excess of 2 %, for credit to the balance of profit/loss at the end of any
accounting year. Where the balance in the IFR is less than 2 %, a draw down
will be permitted subject to the following conditions:
·
The
drawn down amount is used only for meeting the minimum CET1/Tier 1 capital
requirements by way of appropriation to free reserves or reducing the balance
of loss, and
·
The
amount drawn down is not more than the extent, the MTM provisions made during
the aforesaid year exceed the net profit on sale of investments during that
year.
IFR shall be eligible for
inclusion in Tier 2 capital.
Based on RBI notification dated 2nd April 2018. For any
further clarification, please visit www.rbi.org.in
...............Poppy
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