The Reserve Bank of India (RBI) has revised the norms governing the investment portfolio of banks.

Effective from 1 April 2024, the new norms will involve classification, valuation and operation guidelines for the investment portfolio of commercial banks.  The idea is to align them with global standards and best practices.

Banks will have to divide investments into three categories from next financial year: available for sale (AFS), held to maturity (HTM) and a new category called 'fair value through profit and loss', or FVTPL.

The existing held for trading (HFT) category will become a sub-category of the FVTPL.

“The category of the investment shall be decided by the bank before or at the time of acquisition and this decision shall be properly documented," RBI said.

Banks are currently required to follow regulatory guidelines on classification and valuation of investment portfolio, which are based on framework issued in October 2000 drawing upon the then prevailing global standards and best practices.

In view of the significant development in global financial reporting standards, the linkages with the capital adequacy framework as well as progress in the domestic financial markets, revised regulatory framework for the investment portfolio has been issued, the RBI said.

The directions, it said are expected to enhance the quality of banks' financial reporting, improve disclosures, provide a fillip to the corporate bond market, facilitate the use of derivatives for hedging, and strengthen the overall risk management framework of banks.