Informist, Monday, Apr 1, 2024
--Dealers: Bks working to implement new invest norms by end of day
--CONTEXT: RBI-mandated new bank investment norms effective today
--Dealers: Some bks facing issues implementing tech for invest norms
--Dealers: Don't see new tech implementation disrupting gilt trade Tue
--CONTEXT: Money mkts shut today for banks' annual closing of accounts
By Nishat Anjum and Aaryan Khanna
MUMBAI – Most banks are set for trading under the Reserve Bank of India's new investment norms from Tuesday, with their systems primed and portfolio plans ready, gilt market dealers said. However, some state-owned banks are still facing technology-related issues and hope to complete the process only by the end of the day.
According to the revised norms, banks can classify their entire bond investment portfolio under any of three categories – held-to-maturity, available-for-sale, and fair value through profit and loss. Under the new norms, the current sub-category of held-for-trading would be included in the last category. The norms, released by the RBI in September, are effective today. Money markets are closed today for annual closing of banks' accounts.
A significant part of the change needed was from the information technology department, which would apply fresh risk limits and portfolio management, dealers said. Bank treasuries have been preparing for the change through dummy trades over the past week using the new system. State-owned banks, which underwent mergers since 2017, are the primary laggards, while private sector banks said the tests they underwent suggested they were ready for implementation.
"We are still scrambling to get things done by end-of-day," a treasury official at a state-owned bank said. "It is easier for the private banks, but for us, the data upload for the legacy book is still taking some time. It shouldn't be a problem for trading tomorrow (Tuesday), we should be ready by then, but some glitches will persist."
Although most banks have implemented the system without any hassles, some merged state-owned banks are facing challenges in the process of reclassifying investments in legacy books, dealers said. Bonds bought in legacy portfolios had to be manually re-classified into the common accounting book in the new system, in cases where banks had not unified the books in the previous system of accounting. For other banks, the re-classification has happened automatically, dealers said.
Banks have outsourced much of the technology updates to third-party vendors, which are also responsible for helping banks sort out any glitches. "To shift portfolios, we do a dummy trade," a dealer at another private bank said. "We zero the current portfolio by selling it, and then buy it back with the new portfolio, which automatically re-classifies it according to the new norms. Since the systems are mostly set up by Infosys, Cognizant, and TCS, they help us out with this."
Despite the initial hiccups, banks are confident that trading will go well when the new system goes live on Tuesday. Some minor technological difficulties, however, cannot be ruled out, dealers said.
At a meeting of the Fixed Income Money Market and Derivatives Association of India in November, state-owned banks said they were facing operational hurdles in implementing the norms by the start of the new financial year. However, in December, the RBI told banks that it would not delay the implementation of the new norms. Subsequently, the market body offered some operational clarifications through the release of frequently asked questions. Since the RBI refused any postponement of the implementation, banks had no choice but to comply by today, dealers said.
The new investment norms do away with the 90-day ceiling on holding period under held-for-trading books and the statutory ceiling on held-to-maturity bonds, which was 23% of net demand and time liabilities. Under the new norms, banks will lose one of the key drivers of treasury profit--shifting of bonds from the 'held-to-maturity' to the 'available-for-sale' category.
Under the previous system, commercial banks were annually allowed to shift their bonds designated as 'held-to-maturity' to their 'available-for-sale' books. This one-time adjustment happened in early April, and included gilts and state government securities. End
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Informist, Monday, Apr 1, 2024
--Dealers: Bks working to implement new invest norms by end of day
--CONTEXT: RBI-mandated new bank investment norms effective today
--Dealers: Some bks facing issues implementing tech for invest norms
--Dealers: Don't see new tech implementation disrupting gilt trade Tue
--CONTEXT: Money mkts shut today for banks' annual closing of accounts
By Nishat Anjum and Aaryan Khanna
MUMBAI – Most banks are set for trading under the Reserve Bank of India's new investment norms from Tuesday, with their systems primed and portfolio plans ready, gilt market dealers said. However, some state-owned banks are still facing technology-related issues and hope to complete the process only by the end of the day.
According to the revised norms, banks can classify their entire bond investment portfolio under any of three categories – held-to-maturity, available-for-sale, and fair value through profit and loss. Under the new norms, the current sub-category of held-for-trading would be included in the last category. The norms, released by the RBI in September, are effective today. Money markets are closed today for annual closing of banks' accounts.
A significant part of the change needed was from the information technology department, which would apply fresh risk limits and portfolio management, dealers said. Bank treasuries have been preparing for the change through dummy trades over the past week using the new system. State-owned banks, which underwent mergers since 2017, are the primary laggards, while private sector banks said the tests they underwent suggested they were ready for implementation.
"We are still scrambling to get things done by end-of-day," a treasury official at a state-owned bank said. "It is easier for the private banks, but for us, the data upload for the legacy book is still taking some time. It shouldn't be a problem for trading tomorrow (Tuesday), we should be ready by then, but some glitches will persist."
Although most banks have implemented the system without any hassles, some merged state-owned banks are facing challenges in the process of reclassifying investments in legacy books, dealers said. Bonds bought in legacy portfolios had to be manually re-classified into the common accounting book in the new system, in cases where banks had not unified the books in the previous system of accounting. For other banks, the re-classification has happened automatically, dealers said.
Banks have outsourced much of the technology updates to third-party vendors, which are also responsible for helping banks sort out any glitches. "To shift portfolios, we do a dummy trade," a dealer at another private bank said. "We zero the current portfolio by selling it, and then buy it back with the new portfolio, which automatically re-classifies it according to the new norms. Since the systems are mostly set up by Infosys, Cognizant, and TCS, they help us out with this."
Despite the initial hiccups, banks are confident that trading will go well when the new system goes live on Tuesday. Some minor technological difficulties, however, cannot be ruled out, dealers said.
At a meeting of the Fixed Income Money Market and Derivatives Association of India in November, state-owned banks said they were facing operational hurdles in implementing the norms by the start of the new financial year. However, in December, the RBI told banks that it would not delay the implementation of the new norms. Subsequently, the market body offered some operational clarifications through the release of frequently asked questions. Since the RBI refused any postponement of the implementation, banks had no choice but to comply by today, dealers said.
The new investment norms do away with the 90-day ceiling on holding period under held-for-trading books and the statutory ceiling on held-to-maturity bonds, which was 23% of net demand and time liabilities. Under the new norms, banks will lose one of the key drivers of treasury profit--shifting of bonds from the 'held-to-maturity' to the 'available-for-sale' category.
Under the previous system, commercial banks were annually allowed to shift their bonds designated as 'held-to-maturity' to their 'available-for-sale' books. This one-time adjustment happened in early April, and included gilts and state government securities. End
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.