RBI Discussion Paper on Review of Prudential Norms for Classification, Valuation and Operations of Investment Portfolio of Commercial Banks

Reserve Bank of India on January 2022 has issued a Discussion Paper on Review of Prudential Norms for Classification, Valuation and Operations of Investment Portfolio of Commercial Banks. The paper suggests a new framework addressing the significant developments over the last two decades in the global prudential framework, accounting standards as well as in our domestic financial markets.

In updating the current norms, the Bank has considered the following principles:

1. Investments should be reflected in financial reporting in a robust and consistent manner that is in line with their economic substance and global best practices.
2. The valuation methodology, sources of uncertainty in the estimation of fair value and the risks in the investment portfolio should be disclosed thereby enhancing the transparency of the financial statements.
3. Undue need for interpretation may be avoided by reducing complexity. Further, arbitrary rules that may not have justification in economic substance may be avoided.
4. Inconsistencies between the accounting and regulatory capital assessment framework should be minimized.
5. The issues specific to the Indian context should be addressed and given due weightage in the revised framework.