RBI fines ICICI Bank Rs 58.9 crore for treasury violations

MUMBAI: Reserve Bank of India (RBI) has fined ICICI Bank Rs 58.9 crore for violating norms relating to sale of government securities from the held-to-maturity category of its bonds portfolio. This is the highest penalty imposed by RBI on a bank for a single incident.

Shares of ICICI Bank were down nearly 2 per cent to Rs 278 in early morning trade in the Bombay Stock Exchange. In a press release issued on Thursday, RBI said that it has imposed a penalty on ICICI Bank Limited for “non-compliance with directions issued by RBI on direct sale of securities from its HTM portfolio and specified disclosure in this regard”.

“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.

Under RBI guidelines banks have to split their holding of government securities into `held-to-maturity’ (HTM) and available for `available-for-sale’ category. If the market value of bonds in the HTM category falls (due to an increase in interest rates in the market) banks do not need to make provisions. The rationale is that since banks are mandatorily required to invest certain part of their deposits in government bonds they will not be selling any bonds in this category and therefore there is no market loss. Banks are however required to make provisions for losses in the market value of bonds in the AFS category since this is their trading or liquid portfolio.

Under existing guidelines, banks can shift investments to/from HTM with the approval of the Board of Directors once a year, and such shifting will normally be allowed at the beginning of the accounting year. In order to enable banks to shift their excess government securities from the HTM category to AFS/held for trading (HFT) RBI had allowed such shifting of the excess securities and direct sale from HTM category. However, this relaxation came into force only in October 4, 2017.

In its press statement on the penalty RBI has not indicated which period the violation pertained to. The October 17 relaxation allows banks to transfer g-secs in addition to the shifting permitted at the beginning of the accounting year, i.e., in the month of April.

“Such transfer to AFS/HFT category as well as sale of securities from HTM category, to the extent required to reduce the SLR securities in HTM category in accordance with the regulatory instructions, would be excluded from the 5 per cent cap prescribed for value of sales and transfers of securities to/from HTM category,” RBI had said.