Maintaining that Held to Maturity category bonds are not for trading purposes, the Reserve Bank of India (RBI) imposed a monetary penalty of Rs 589 million on ICICI Bank.
The penalty was imposed on the bank for selling bonds from the lender’s Held To Maturity (HTM) category.
It need be mentioned that bonds in HTM category are kept for redemption at the end of maturity and are not for trading purpose.
The RBI says that these cannot be sold off in the interim before maturity of the bonds.
It need be mentioned that there are other two portfolios in bonds, namely, Available for Sales (AFS) and Held for trading (HFT) that are used for trading purpose and therefore are liable for MTM linked valuation.
Sources informed that the RBI allows banks to shift from one basket to the other once a year.
This is allowed usually at the beginning of the financial year.
The HTM category is maintained as a measure of bank’s solvency. At least 20 per cent of a bank’s deposit must be held in bonds in HTM category.
Selling directly from HTM, therefore, is a violation of regulations.>