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News: RBI has issued a revised framework for classification, valuation, and operations of investment to align with global standards. According to the new framework, banks will have to classify investments into three categories - Available for sale (AFS), Held to maturity (HTM) and a new category called 'Fair value through profit and loss (FVTPL) with existing HFT portfolio as a sub-category. Ceiling on the holding period in HTM and HFT category are relaxed. Investments under FVTPL are to be valued at fair price with gains or losses to be routed through P&L, however, MTM valuation in AFS portfolio is to be recognised under a reserve - AFS reserves without routing it through P&L.
Views: This new framework is effective from 1 April 2024. Recognition of MTM gains or loss in AFS in reserves directly is seen to limit volatility in banks earnings owing to change in yields, however, impact on networth remains neutral.
Impact: Neutral