This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement, says RBI
Reserve Bank of India (RBI) has slapped a fine of Rs 58.9 crore on ICICI Bank, the largest penalty imposed on any bank, for selling bonds held under the category of Held to Maturity (HTM) and failing to disclose the direct sale of bonds in contravention of regulatory requirements.
While RBI said the penalty is deficiencies in regulatory compliance, ICICI Bank said it misunderstood the timing of the regulation. However, RBI did not buy the bank’s explanation.
“This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” RBI said in a statement.
ICICI Bank in an email statement said, “RBI has imposed a penalty on the bank for the continued sale of government securities classified as HTM. ICICI Bank had continued with the sales from HTM category for a few weeks during the quarter ended March 31, 2017, due to a genuine misunderstanding on the timing of the applicability of RBI’s direction in this matter."
RBI on Thursday morning said, This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account failure of the bank to adhere to the aforesaid directions and guidelines issued by RBI.
The issue is about the sale of bonds held in the HTM category, which are bonds that need not be marked to market and are held until maturity date. Since it has a cushion from the market movements, there are regulatory prescriptions for its sale and disclosures on the portfolio.
Banks have three categories on their treasury book. First one is AFS which are bonds available for sale. This portfolio does not have any regulatory limit. The second one is the HTM category where the bonds are held to maturity. The third category of bonds is held for trading, where the bonds have to be churned continuously and cannot be held for more than 90 days.
RBI has mandated that banks can only hold 19.5% of their deposits and other liabilities (NDTL) as HTM category with strict prescription on their sale. Only 5% of outstanding HTM of the previous financial year can be sold. If banks sell higher than this limit, they have to disclose it and also mark to market on the entire portion of the bonds.
ICICI Bank said in its clarification, “As per RBI guidelines, the bank had disclosed in its annual report for 2016-17 that it had sold more than 5% of investments categorised as HTM. However, the bank had not made the specified additional disclosure at that time. The bank has subsequently been making the specified disclosure as directed by RBI in the audited financial results since the quarter ended June 30, 2017.”
ON WRONG SIDE
- This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement, RBI said
- RBI has mandated that banks can only hold 19.5% of their deposits and other liabilities (NDTL) as HTM category with strict prescription on their sale
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