Bank Investments in India

Banks assets are held either in the form of  i) Loans and Advances and ii) Investments.
Investments are important source of income for bank.

Banks are required to invest a minimum of their Net Demand and Time Liabilities (NDTL) in SLR investments like Government securities and other approved securities under the BR act of 1949.

Investment Policy

Each bank is responsible for framing the investment policy of the bank. The Committee named Asset Liability Committee (ALCO) consists of senior bank officials and headed by CEO.

Investment Policy provides guidelines with respect to investment,maturity,rating bonds,standards,auditing and review.

Review will done on half yearly basis and it will submit to CEO for approval.

Statutory Reserve Requirements

As per BR act 1949, Banks needs to maintain a minimum percentage on central or state government approved securities and treasury bills.

If the bank fails to maintain the required amount of SLR on a given day then RBI will put a penalty of 3% of bank rate on the shortfall and if it continues on the second day then it will levy 5% per annum above the bank rate for the concerned days on shortfall.

SLR Investments are more safety.

Non-SLR Investments

If any proposal for new Non-SLR investments came to bank then the Investment Policy committee will review the Non-SLR Investments. After critical examination and clearance by Committee then sanction should obtained from respective authorities.Mutual bonds,shares and others will under Non-SLR Investments.

Banks Investment Classification and Valuation Forms

The Investment Portfolio of bank contains only Approved securities and Others(Shares,Debentures and bonds).

Investment Portfolio classified into 3 types

• Held To Maturity (HTM) - Securities held up to the time of maturity
• Held For Trading (HFT) - Securities to take profit on short term price / interest rate movements
• Available for Sales (AFS) - Securities not included in HTM and HFT are AFS.

Profit and loss on HFT and AFS categories are taken in the income statement. 

Shifting of investments from / to HTM and from AFS to HFT can done with the approval.

Shifting from HFT to AFS is not permitted.