RBI imposes Rs 589 mn penalty on ICICI Bank for violating bond sales norms

The Reserve Bank of India (RBI) on Thursday imposed a monetary penalty of Rs 589 million on ICICI Bank for selling bonds from the lender’s Held To Maturity (HTM) category. Bonds in HTM category are kept for redemption at the end of maturity and are not for trading purpose. They cannot be sold In the interim before maturity of the bonds.
 
RBI imposes Rs 589 mn penalty on ICICI Bank for violating bond sales norms

The Reserve Bank of India (RBI) on Thursday imposed a monetary penalty of Rs 589 million on ICICI Bank for selling bonds from the lender’s Held To Maturity (HTM) category.

Bonds in HTM category are kept for redemption at the end of maturity and are not for trading purpose. They cannot be sold In the interim before maturity of the bonds. Therefore, these bonds don’t attract ‘Mark to Market’ losses (MTM), which is a practice of valuing bonds at their prevailing market rates and not at historical prices.

There are other two portfolios in bonds —Available for Sales (AFS) and Held for trading (HFT) that are used for trading purpose and therefore are liable for MTM linked valuation.

The RBI allows banks to shift from one basket to the other once a year, typically 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.

“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,” the RBI said in its statement.business-standard

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