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”.
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.