New Delhi: State-run banks have asked the Reserve Bank of India (RBI) for the relaxation of a rule that requires them to set aside capital if the fair value of recapitalisation bonds issued to them falls below the acquisition cost, ET has learnt.
Banks want clarity on this as well as the possibility of writing back provisions for valuation losses, said a person familiar with the move.
“There could be a substantial burden on lenders, as the fair value of these bonds needs to be calculated from the date of allotment,” the executive said.
Revised Norms Came in Sept
“In the past, the regulator has given some dispensation, considering that there is still ambiguity on the issue,” the executive said. In September 2023, RBI issued revised guidelines on investment classification and valuation that go into effect on April 1, 2024. Under the new rules, the fair value of special securities received from the Centre toward recapitalisation will be based on prices and yields to maturity of Union government securities of similar tenor.
Bank of Maharashtra, which in its December quarter results set aside ₹100 crore on this score, has approached the RBI, according to two officials aware of developments. Other lenders that received government support through these bonds have also reached out to RBI, another bank executive said. The central bank didn’t respond to queries.
“We have represented that these securities should be valued at acquisition cost and sought clarification on ambiguities over investment classification and treatment of these instruments,” said a senior Bank of Maharashtra executive.
The lender hopes that RBI will allow it to write back the ₹100 crore provision, he said.
