MADHYAPRADESH GRAMIN BANK HEAD OFFICE: INDORE

Madhya Pradesh Gramin Bank Investment Policy 2021-22

MADHYA PRADESH GRAMIN BANK

HEAD OFFICE : INDORE

Investment Policy 2021-22

HEAD OFFICE

204, C21 BUSINESS PARK, C21 SQUARE, OPP. RADISSON BLU

HOTEL, MR-10, INDORE (M.P.) 452 010


MADHYA PRADESH GRAMIN BANK PROPOSED CHANGES IN INVESTMENT POLICY - 2021-22

S.No

Point No. Particulars as per existing Policy approved in Board

Meeting dated 01.12.21 Proposed Changes

1

Part I – Point

No. 2.5 Maintenance

of CRR

In its notification DOR. No. Ret. BC. 50/12.01.001/2019-20 dated March 27, 2020, the Reserve Bank of India reduced for one year, the Average Cash Reserve Ratio (CRR) required to be maintained by our Bank to 3.00% of its net demand and time liabilities. The notification is enclosed below:

In exercise of the powers conferred under the sub-section (1) of Section 42 of the Reserve Bank Act, 1934 and sub-section (1) of Section 18 of the Banking Regulation Act, 1949 (10 of 1949), and in partial modification of the earlier notifications DBOD.No.Ret.BC.75/12.01.001/2012-13 dated January 29, 2013, DBOD.No.Ret.BC.79/12.01.001/2012-13 dated January 29, 2013 and RPCD.CO.RCB.RRB.BC.No.60/03.05.33/2012-13 dated January 29, 2013, the Reserve Bank of India hereby notifies that the average Cash Reserve Ratio (CRR) required to be maintained by every Bank shall be 3.00 per cent of its net demand and time liabilities from the fortnight beginning March 28, 2020 for a period of one year, ending on March 26, 2021.

In its notification Circular DOR.No.Ret.BC.49/12.01.001/2019-20 dated March 27, 2020, on the captioned subject. The cash reserve ratio (CRR) of all banks was reduced by 100 basis points to 3.00 per cent of their Net Demand and Time liabilities (NDTL) effective from the reporting fortnight beginning March 28, 2020. The dispensation was available for a period of one year ending March 26, 2021. 2. As per paragraph 2 of the Statement on Developmental and Regulatory Policies dated February 05, 2021, RBI has decided to gradually restore the CRR in two phases in a non-disruptive manner. Accordingly, banks are required to maintain the CRR at 3.50 per cent of their NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.00 per cent of their NDTL effective from fortnight beginning May 22, 2021. Hence, our Bank is required to maintain the CRR at 3.50 per cent of their NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.00 per cent of their NDTL effective from fortnight beginning May 22, 2021.

2

Part I – Point No. 2.5

Maintenance of CRR

Daily Minimum Cash Reserve Maintenance Requirement: Reserve Bank of India vide its

circular No. RBI/2015-16/359 DBR.No.Ret.BC.91 /12.01.001/ 2015-16 dated April 5, 2016 addressed to all commercial banks (including RRBs) decided to reduce the minimum daily maintenance of the Cash Reserve Ratio from 95 per cent of the requirement to 90 per cent effective from the fortnight beginning April 16, 2016.

Daily Minimum Cash Reserve Maintenance Requirement: Reserve Bank of India vide its circular RBI/DOR/2021-22/80 DOR.No.RET.REC.32/12.01.001/202

1-22 Dated July 20, 2021 states that Every scheduled bank, small finance bank and payments bank shall maintain minimum CRR of not less than ninety per cent (90%) of the required CRR on all days during the reporting fortnight, in such a manner that the average of CRR maintained daily shall not be less than the CRR prescribed by the Reserve Bank.

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11841&Mode=0



https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51078




3

Part I – Point

No.3 (3.1)

Addition of Internal

policy on Non SLR

Investments

Internal Policy on Non SLR investment: As an abundant safety measure, our Bank will only invest in instruments rated AAA or equivalent. It will, preferably, invest in Central Government owned/guaranteed Bonds. Investment in MF schemes will be based on their past performance and AUM size. Additionally, the bank would only invest in MF schemes whose AUM is at least Rs. 5000 cr.

Internal Policy on Non SLR investment: As an abundant safety measure, our Bank will only invest in instruments rated AAA or equivalent. It will, preferably, invest in Central Government owned/guaranteed Bonds & Selected and renowned private sector companies having rating of AAA or equivalent. Investment in MF schemes will be based on their past performance and AUM size. Additionally, the bank would only invest in MF schemes whose AUM is at least Rs. 5000 Crores.

4

Part I – Point No. 3.1 (b)

Bonds of Public Sector Undertakings (those fully owned by Central/State Governments in which Central/State Governments have more than 50% equity holding) / organizations owned/guaranteed by the State Government who have not defaulted in their obligations for servicing of their loans, interest on Bonds etc., at the time of investment;

Deletion of sentence from Investment category from point No. 3.1(B) “guaranteed by the State Government who have not defaulted in their obligations for servicing of their loans, interest on Bonds etc., at the time of investment;”

5

Part I – Point No. 3.3.4. Ceiling on Investment

The maximum exposure limit per corporate for debentures will be Rs. 2.00 crores, and per group Rs. 5.00 crores. (The minimum rating should be AAA at least by two Rating Agencies)

The maximum exposure limit per corporate for debentures will be Rs.10.00 Crores, and per group Rs.25.00 Crores. (The minimum rating should be AAA at least by two Rating Agencies)

6 Part I – Point No. 4.3

One Time Transaction powers of Investment committee

III.(B) - Units of Mutual Fund-Rs.50.00 Crores - Subordinated Bonds of Banks PSU Bond- Rs.20.00 Crores. - Term Mony Borrowing- Rs.20.00 Crores.

III.(B) -Units of Mutual Fund-Rs.75.00 Crores. - Subordinated Bonds of Banks PSU Bond- Rs.50.00 Crores - Term Mony Borrowing- Rs.50.00 Crores.

7

Part II

Point No. 1.2

Held to Maturity

1. In reference to Statement on Developmental and Regulatory Policies of the Monetary Policy Statement dated October,9 2020 , Circular DoR.No.BP.BC.9/21.04.141/ 2020-21 dated September 1, 2020 and Circular DoR.No.BP.BC.22/21.04.141/ 2020-21 on the above subject.

2. Banks are permitted to exceed the limit of 25 per cent of the total investments under Held to Maturity (HTM) category provided the excess comprises only of SLR securities and total SLR securities held under HTM category is not more than 19.5 per cent of Net Demand and Time Liabilities

In reference to paragraph 4 of Statement on Developmental and Regulatory Policies dated February 5, 2021 and our circular DoR.No.BP.BC. 22/21.04.141/2020-21 dated October 12, 2020 on the above subject.

2. Banks are permitted to exceed the limit of 25 per cent of the total investments under Held to Maturity (HTM) category provided: the excess comprises only of SLR securities; and total SLR securities held under HTM category is not more than 19.5 per cent of Net Demand and Time Liabilities










(NDTL) as on the last Friday of the second preceding fortnight. Banks are, vide our circular dated September 1, 2020 referred to above, allowed to hold under HTM category, SLR securities acquired on or after September 1, 2020 up to an overall limit of 22 per cent of NDTL, up to March 31, 2021. It has now been decided to extend the dispensation of the enhanced HTM limit of 22 percent, for SLR securities acquired between September 1, 2020 and March 31, 2021, up to March 31, 2022, i.e. banks may continue to hold such excess SLR securities in HTM category up to March 31, 2022.

3. It has also been decided that the enhanced HTM limit shall be restored to 19.5 per cent in a phased manner, beginning from the quarter ending June 30, 2022, i.e. the excess SLR securities acquired by banks during the period September 1, 2020 to March 31, 2021 shall be progressively reduced such that the total SLR securities held in the HTM category as a percentage of the NDTL does not exceed: i. 21.00 per cent as on June 30, 2022 ii. 20.00 per cent as on September 30, 2022 iii. 19.50 per cent as on December 31, 2022 4. As per extant instructions, banks may 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. However, in order to enable banks to shift their excess SLR securities from the HTM category to AFS/HFT to comply with the instructions as indicated in paragraph 3 above, it has been decided to allow such shifting of the excess securities during the quarter in which the HTM ceiling is brought down. This would be in addition to the shifting permitted at the beginning of the accounting year. 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

(NDTL) as on the last Friday of the second preceding fortnight.

3. With respect to the limit stated in paragraph 2 (b) above, banks have been granted a special dispensation of enhanced HTM limit of 22 per cent of NDTL, for SLR securities acquired between September 1, 2020 and March 31, 2021, until March 31, 2022. The enhanced limit was required to be restored in a phased manner over three quarters beginning with the quarter ending June 30, 2022.

4. It has now been decided to extend the dispensation of enhanced HTM of 22 per cent to March 31, 2023 to include SLR securities acquired between April 1, 2021 and March 31, 2022. Thus, banks may exceed the limit specified in paragraph 2(b) above upto 22 per cent of NDTL (instead of 19.5 per cent of NDTL) till March 31, 2023, provided such excess is on account of SLR securities acquired between September 1, 2020 and March 31, 2022.

5. The schedule for restoring the enhanced HTM limit to 19.5 per cent of NDTL specified in paragraph 3 of the circular dated October 12, 2020 referred to above is accordingly modified. The enhanced HTM limit shall be restored to 19.5 percent in a phased






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 under paragraph 2.3 (ii) of the Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio of Bank.

*Profit on sale of investments in this category should be first taken to the Profit & Loss Account and thereafter be appropriated to the ‘Capital Reserve Account’. Loss on sale will be recognized in the Profit & Loss Account.

*No Non-SLR securities are permitted to be included in HTM.

manner, beginning from the quarter ending June 30, 2023, i.e. the excess SLR securities acquired by banks during the period September 1, 2020 to March 31, 2022 shall be progressively reduced from the HTM category such that the total SLR securities under the HTM category as a percentage of the NDTL does not exceed:

a. a. 21.00 per cent as on June 30, 2023 b. b. 20.00 per cent as on September 30,

2023 c. c. 19.50 per cent as on December 31,

2023

6. As per extant instructions, banks may 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. However, in order to enable banks to shift their excess SLR securities from the HTM category to available for sale (AFS)/ held for trading (HFT) to comply with the instructions as indicated in paragraph 5 above, it has been decided to allow such shifting of the excess securities during the quarter in which the HTM ceiling is brought down. This would be in addition to the shifting permitted at the beginning of the accounting year.

xxxxxxxxx


Madhya Pradesh Gramin Bank

Investment Policy

In terms of RBI Circular No. RPCD/No. NB.BC.98/03.05.34/94-95 dated 02.01.1995, inter-alia, the Sponsor Bank shall aid and advise the RRB regarding the choice of investment avenues. The investment decisions will, however, be taken by the Board of the RRB who shall be responsible for the overall management of its investment portfolio. This arrangement shall continue till such time the RRB develops the requisite technical expertise in the field of funds management. The sponsor Bank will also frame guidelines for investment of surplus funds by the RRB subject to the directives/instructions from RBI/NABARD.

Reserve Bank of India vide its circular No. RBI/2013-14/434 RPCD.CO. RRB.BC.No.

74/03.05.33/2013-14 dated 07th January 2014 have revised the guidelines for Classification and Valuation of Investments of RRBs.

The comprehensive Investment Policy document incorporating all the changes till date is enumerated below:

PART - I

1. OBJECTIVES:

One of the basic objectives with which the Regional Rural Banks have been established is to provide credit support in the rural areas, particularly to the weaker section, for the overall economic development of the area of their operation. With a view to provide better opportunities to these Banks for improving yield on deployed funds, the RBI has permitted them to invest the surplus funds in Non- SLR securities.

The broad objectives of Bank’s investment policy shall be:-

Compliance of Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) norms, as per Banking Regulation Act, 1949.

Deployment of funds towards achieving commitments under Annual Credit Plan/MOU, etc, laying emphasis on expansion of qualitative credit with better yield;

Maintenance of adequate liquidity for meeting various short Term/Long Term repayment obligations and;

Prudent deployment of funds in approved and permissible Non-SLR investment avenues ensuring:

Sufficient Liquidity Optimum Profitability Adequate Safety

Management of interest rate risk/market risk with appropriate risk management tools/ systems.

2. Investment Committee

Bank’s Investment Committee shall consist of following members:

General Manager as Chairman/Presiding Officer

Chief Manager/HOD, Corporate Service Department

Chief Manager/HOD, Planning Department

Chief Manager/HOD, Credit Department

Chief Manager/HOD, Board Secretariat

Chief Manager/HOD, Investment & Funds Management


7

Chairman will be empowered to nominate any other officer/officers to this Committee. Senior Manager /HOD(Head of the Department), Investment & Fund Management Department shall be Secretary of the committee. Minutes of this committee will be presented in the next ALCO meeting.

2.1 The investment Committee shall be recommending for investment to the Chairman. 2.2 The committee shall meet as and when required at short notice.

a) The quorum for the meeting shall be minimum three. (In case General Manager is not available then the senior most Chief Manager/Head of the department, available will be the Chairman/Presiding Officer of the committee.)

b) The committee shall formulate and devise strategies and suggest appropriate steps in tune with the laid down policies, procedures and operations of funds and investment of the bank.

2.3 The Committee shall workout a) Exposure Limits b) Quantum of 5% of incremental deposits for the last accounting year which shall be

available for investment in Equity/ debentures of corporate, units of Mutual Fund and buying of Shares/Debentures from primary/secondary market.

c) Review the maturity pattern of existing investments and deposits. d) Investment plan for the year to be reviewed on quarterly basis. e) Review of investment portfolio monthly basis and take prompt action in respect of:-

i) Interest to be received. ii) Redemption amount receivable. iii) Exercising put option, if available with investment. iv) Compliance of term of offer by the issuer of NCDs such as appointment of

Trustees, Registration of Trust Deed, Creation/ registration of Trust Deed, Creation of/ Registration of Securities offered, etc.

f) Repayment obligations towards refinance/loans from NABARD/sponsor Bank/other institutions falling due during the year.

g) CRR/SLR requirements based on projected level of DTL for ensuring maintenance of CRR/ SLR up to stipulated requirement.

h) The Investment Committee will ensure that the Investment portfolio of the Bank is conducted within the policy guidelines, exposure limits and prudential norms prescribed by RBI from time to time and comprehensive review note is put up in every Board meeting.

Permitted Investment Avenues:-

2.4 Investment in SLR Securities

Investments under SLR are made to comply with the regulatory and statutory requirements. The profitability should also be the objective of managing such investments. It is therefore, necessary to be on the lookout for profitable investment avenues by opting for high yielding securities from the primary and secondary market. Bank will maintain stipulated percentage (at present- 18.00% w.e.f. 11.04.2020 vide RBI Circular No. RBI/2018-19/86 DBR. No.Ret.BC.10/12.01.001/ 2018-19 dated 05.12.2018) and it has decided to reduce the SLR requirement of banks by 25 basis points every calendar quarter from 19.50 per cent of their Net Demand & Time Liabilities to

1. 19.25 percent from January 5,2019 2. 19.00 percent from April 13,2019 3. 18.75 percent from July 6, 2019 4. 18.50 percent from October 12,2019 5. 18.25 percent from January 4,2020 6. 18.00 percent from April 11,2020 As on the second preceding fortnight or as decided by RBI from time to time.


8

The Bank has the option to comply with SLR through a mix of the following components:

(a) In cash i) excess of CRR ii) Cash in hand iii) Balances maintained in C/D A/c with Banks’

(b) In gold, valued at a price not exceeding the current market price (c) In Unencumbered approved securities valued at a price determined in accordance with

method of valuation, as may be specified by the Reserve Bank of India from time to time.

Bank has a CSGL (Constituent Subsidiary General Ledger) account with Sponsor Bank i.e. Bank of India for transactions in government securities. For the purpose of transactions Bank may also use services of STCI(PD) Ltd. as well as Sponsor Bank through this account. Moreover, web based NDS- OM facility may be availed and used for such transaction under guidance of sponsor bank.

2.5 Maintenance of CRR: In its notification Circular DOR.No.Ret.BC.49/12.01.001/2019-20 dated March 27, 2020, on the captioned subject. The cash reserve ratio (CRR) of all banks was reduced by 100 basis points to 3.00 per cent of their Net Demand and Time liabilities (NDTL) effective from the reporting fortnight beginning March 28, 2020. The dispensation was available for a period of one year ending March 26, 2021. 2. As per paragraph 2 of the Statement on Developmental and Regulatory Policies dated February 05, 2021, RBI has decided to gradually restore the CRR in two phases in a non-disruptive manner. Accordingly, banks are required to maintain the CRR at 3.50 per cent of their NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.00 per cent of their NDTL effective from fortnight beginning May 22, 2021. Hence, our Bank is required to maintain the CRR at 3.50 per cent of their NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.00 per cent of their NDTL effective from fortnight beginning May 22, 2021.

Daily Minimum Cash Reserve Maintenance Requirement: Reserve Bank of India vide its circular

RBI/DOR/2021-22/80 DOR.No.RET.REC.32/12.01.001/2021-22 Dated July 20, 2021 states that Every scheduled bank, small finance bank and payments bank shall maintain minimum CRR of not less than ninety per cent (90%) of the required CRR on all days during the reporting fortnight, in such a manner that the average of CRR maintained daily shall not be less than the CRR prescribed by the Reserve Bank.

3. Investment in Non SLRSecurities

Investment in Non-SLR Securities would be considered as per RBI/NABARD directives in this regard.

3.1 Non-SLR Investment Avenues:

a) Non-convertible Debentures (NCDs) of PSUs and Corporations; b) Bonds of Public Sector Undertakings (those fully owned by Central/State

Governments in which Central/State Governments have more than 50% equity holding) / organizations owned);

c) Bonds/Debentures of All India Financial Institutions(AIFIs) approved by RBI/IBA. d) At present, Investment in shares and debentures of Corporate and Units of Mutual

Funds up to 5 percent of the incremental deposits at the end of preceding financial year including buying the shares/debentures from the secondary market or as per the changes advised by the RBI from time to time;






9

Internal Policy on Non SLR investment: As an abundant safety measure, our Bank will only invest in instruments rated AAA or equivalent. It will, preferably, invest in Central Government owned/guaranteed Bonds & Selected and renowned private sector companies having rating of AAA or equivalent. Investment in MF schemes will be based on their past performance and AUM size. Additionally, the bank would only invest in MF schemes whose AUM is at least Rs. 5000 Crores.

3.2 Exposure Norms:

3.2.1 All the Non SLR investments made by the bank should qualify the single exposure norms i.e. the loans granted to a company together with investments made in its share/debentures by the bank should not exceed 15 percent of owned funds of the bank or 15 percent of paid up share capital of the company, whichever is less or as per the changes advised by RBI from time to time.

3.2.2 The single exposure norms are applicable to all types of investments including investments in PSUs and AIFIs.

3.2.3 Owned Funds include paid-up capital, free reserves and share capital deposits contributions received from Central Govt., State Govt. and Sponsor Bank. Reserves created by way of revaluation of fixed assets are not to be included for this purpose.

3.2.4 Computation of owned funds as indicated in 3.2.3 above is allowed on a “Notional” basis only for working out exposure limit for advances/investments.

3.2.5 Bank’s investment in bonds issued by other banks and financial institutions in the form of subordinate debts for the purpose of Tier II capital should not exceed 10 percent of total owned funds of the bank i.e. paid up capital, share capital deposits and free reserves.

3.3 Ceiling on Investment: 3.3.1 As per the prevailing RBI directives, Bank is permitted to invest in shares and debentures of

corporate andunits of mutual funds only up to 5% of the incremental deposits at the end of the preceding financial year including buying shares/debentures from the secondary market.

3.3.2 No such ceiling (as stated in 3.3.1 above) in regard to investments in bonds of: a) Public sector undertakings (those fully owned by Central / State Governments or in

which Central / State Governments have more than 50% equity holding);and b) All India Financial Institutions.

3.3.3 All the Non-SLR investments should satisfy the single exposure norms, i.e., the loans granted to a company together with investments made in its shares by the Bank should not exceed 15% of the owned funds of the Bank or 15% of the paid-up share capital of the company whichever is less.

3.3.4 The maximum exposure limit per corporate for debentures will be Rs.10.00 crores, and per group Rs.25.00 crores. (The minimum rating should be AAA at least by two Rating Agencies)

3.3.5 In case of PSU Bonds, Mutual Funds and investment in Term Deposits in profit making term lending financial institutions, the exposure limit would be as per single exposure norms.

3.3.6 With regard to placement of surplus funds in Certificate of Deposits/Short/Term deposits with other banks, the limit will be as under: (A) Nationalized banks – Other Public Sector Bank (including SBI and its associates) and

Regional Rural Banks (excluding Sponsor Bank) Up to 25% of deposits at the end of preceding financial year per bank.

(B) Foreign/District Central Cooperative Banks– The RBI does not permit any investment in Foreign/District Central Cooperative Banks.

(C) Private Sector Banks– A maximum placement of 15% of total deposits at the end of

preceding financial year under this category.(As per RBI letter No.RPCD.No. RRB.7973/03.05.34 (A)2006-07 Dt.28/02/07 “RRBs may be allowed to park their surplus funds with those Private Sector Banks which have been authorized to


10

conduct Government business provided the concerned sponsor bank of RRB does not have any objection.”)

In this regard as per sponsor bank suggestion (As per BOI letter Ref. No. RMD/GPS/2019-20/170 Dt. 31.05.2019) from a risk perspective may be permitted to place funds in such private sector banks which meet all of the following criteria. - a) The balance sheet of the bank should not be less than Rs.1,00,000 Crores. Banks of

such size have a well-diversified geographical presence and hence usually have reduced risk levels.

b) The Tier I capital of the Bank should not be less than Rs.5,000 Crores. The strength of Tier-I capital makes the bank capability to absorb shocks higher.

c) The bank should satisfy the CRAR requirements as applicable to it. This would ensure

that large sized but intrinsically weak banks automatically get eliminated.

Note: The total placement, however, should not exceed 25% of total deposits at the end of preceding financial year. (Excluding Sponsor Bank)

(D) Sponsor Bank: - However these limits will not apply for investment in Sponsor Bank.

The Bank may decide about ceiling on individual investment keeping in view the liquidity position etc.

4. SECONDARY MARKETOPERATIONS:

a) The Bank is permitted to freely participate in the secondary market for debt and equity securities to achieve the following objectives:-

b) to improve the quality of existing investment portfolio in terms of maturity, yield, credit quality and also to adjust to the desired level of duration;

c) to invest surplus fund in securities where secondary market yields are better than the primary market OR when suitable maturities are available only in secondary market;

d) to dispose of weak security on account of change in financial status of issuer/change in credit rating; and

e) To improve liquidity.

4.2 The market operations for managing overall investment portfolio within the prudential norms and within the accepted risk parameters are to be carried out as per requirements of business. The Bank would from time to time buy or sell securities, to meet the requirements in this regard. Purchase and sale for this purpose would be subject to the following conditions and approval at appropriate level; * The securities purchased in secondary market should meet with Prudential norms and

relevant RBI/NABARD directives;

* Securities categorized under “Current” or “Available for Sale” / “Held to Maturity” category may be disposed off in case of need. The Investment Committee is permitted to dispose of the security at loss not exceeding 5% of the book value of the security.

In case loss exceeds 5% of the book value of the security, ratification of the same be sought in the immediate succeeding meeting of the Board, after the transaction.

* The buy / sell transactions should be conducted keeping in view available resources; and

* All secondary market transactions are to be approved / sanctioned / ratified by the Board.


11

4.3 Powers for Investment/Disinvestment:

All the investments decisions shall be taken at the Board level and shall be directly supervised by the Chairman or in his absence by General Manager/Next Senior Officer.

The RRB Board may delegate powers to investment committee for taking investment decisions with the concurrence of the Chairman as follows:-

Investment powers (One time transaction powers) delegated in respect of Investment Functions.

(Rupees in crore)

No Particular Board Investment Committee

I Borrowing power Full Full

II Lending powers-

Money at call and short notice Full 25.00

IBD (Inter Bank Deposit) Full Full

III A Sale & purchase of SLR securities

T Bill/ Govt. Securities/SDL Full 200.00

Other than Govt. Securities Full 20.00

B. Non-SLR

Shares & debentures Full 5.00

Units-Mutual Fund Full 75.00

Subordinated Bonds of Banks PSU Bond Full 50.00

Term Money Borrowing Full 50.00

4.4 TRANSACTION THROUGH BROKERS/PRIMARYDEALERS:

As advised by NABARD, vide letter No. NB.IDD.RRCBD (POL) 365/437/2002-03 dated 13.05.2002; RRBs are advised to purchase all Govt. Securities through the Sponsor Bank and routed through their Constituent Subsidiary General Ledger Account at market related rates on the date of purchase/sale.

4.4.1 Transaction through Brokers/Primary Dealers (For securities other than Govt. Securities)

(a). Panel of Brokers – The bank shall have in its panel a list of brokers who are enlisted members of the NSE and BSE who are empanelled in debt market segment. The transactions put through should be from the approved panel of Sponsor Bank only.

(b). Role of the broker shall be restricted to bringing the parties together. The broker shall not be involved for either delivery or settlement, unless broker himself is the counterparty.

(c). Turnover limit – annual turnover per broker shall be restricted to 5% of the total turnover of the bank for the financial year.


12

Part - II Accounting policy

The accounting policy and procedures adopted by the Bank will be as stipulated by the Reserve Bank of India vide its Circular No. RBI/2013-14/434 RPCD.CO. RRB.BC.No. 74/03.05.33/2013-14 dated 07th January 2014 which is effective from 01 April 2014. According to the said circular, RRBs has introduced MTM norms in respect of SLR securities w.e.f. April 01, 2014.

1. CLASSIFICATION OF INVESTMENT

1. Categorization

The entire investment portfolio of the Bank comprising SLR securities and non-SLR securities will be classified under three categories viz. ‘Held to Maturity’, ‘Available for Sale’ and ‘Held for Trading’. However, in the Balance Sheet, the investments will continue to be disclosed as per the existing five classifications viz. (1) Government Securities (2) Other approved securities (iii) Shares (iv) Debentures & Bonds (v) Others like Mutual Fund units, etc. RRBs should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals.

1.1 Definitions

Held to Maturity (HTM): The securities acquired by the Bank with the intention to hold them up to maturity will be classified under Held to Maturity (HTM).

Held for Trading (HFT): The securities acquired by the RRBs with the intention to trade by taking advantage of the short-term price/interest rate movements will be classified under Held for Trading (HFT).

Available for Sale (AFS): The securities which do not fall within the above two categories will be classified under Available for Sale (AFS).

1.2 Held to Maturity

In reference to paragraph 4 of Statement on Developmental and Regulatory Policies dated February 5, 2021 and our circular DoR.No.BP.BC.22/21.04.141/2020-21 dated October 12, 2020 on the above subject.

2. Banks are permitted to exceed the limit of 25 per cent of the total investments under Held to Maturity (HTM) category provided:

a. the excess comprises only of SLR securities; and total SLR securities held under HTM category is not more than 19.5 per cent of Net Demand and Time Liabilities (NDTL) as on the last Friday of the second preceding fortnight.

3. With respect to the limit stated in paragraph 2 (b) above, banks have been granted a special dispensation of enhanced HTM limit of 22 per cent of NDTL, for SLR securities acquired between September 1, 2020 and March 31, 2021, until March 31, 2022. The enhanced limit was required to be restored in a phased manner over three quarters beginning with the quarter ending June 30, 2022.

4. It has now been decided to extend the dispensation of enhanced HTM of 22 per cent to March 31, 2023 to include SLR securities acquired between April 1, 2021 and March 31, 2022. Thus, banks may exceed the limit specified in paragraph 2(b) above upto 22.00 per cent of NDTL (instead of 19.5 per





13

cent of NDTL) till March 31, 2023, provided such excess is on account of SLR securities acquired between September 1, 2020 and March 31, 2022.

5. The schedule for restoring the enhanced HTM limit to 19.5 per cent of NDTL specified in paragraph 3 of the circular dated October 12, 2020 referred to above is accordingly modified. The enhanced HTM limit shall be restored to 19.5 percent in a phased manner, beginning from the quarter ending June 30, 2023, i.e. the excess SLR securities acquired by banks during the period September 1, 2020 to March 31, 2022 shall be progressively reduced from the HTM category such that the total SLR securities under the HTM category as a percentage of the NDTL does not exceed:

a. 21.00 per cent as on June 30, 2023 b. 20.00 per cent as on September 30, 2023 c. 19.50 per cent as on December 31, 2023

6. As per extant instructions, banks may 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. However, in order to enable banks to shift their excess SLR securities from the HTM category to available for sale (AFS)/ held for trading (HFT) to comply with the instructions as indicated in paragraph 5 above, it has been decided to allow such shifting of the excess securities during the quarter in which the HTM ceiling is brought down. This would be in addition to the shifting permitted at the beginning of the accounting year.

1.3 Available for Sale & Held for Trading

i. Bank will have the freedom to decide on the extent of holdings under Available for Sale and Held for Trading. This will be decided by the Bank after considering various aspects such as basis of intent, trading strategies, risk management capabilities, tax planning, manpower skills, capital position.

ii. The investments classified under Held for trading category would be those from which the Bank expects to make a gain by the movement in the interest rates / market rates. These securities are to be sold within 90days.

iii. Profit or loss on sale of investments in HFT & AFS categories will be taken to the Profit & Loss account.

2. Shifting of Investments:

i. Bank may shift investments to/from HTM category with the approval of the Board of Directors once a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to/from this category will be allowed during the remaining part of that accounting year.

ii. The Bank may shift investments from AFS to HFT category with the approval of their Board of Directors/ALCO/Investment Committee. In case of exigencies, such shifting may be done with the approval of the Chairman of the bank, but should be ratified by the Board of Directors/ALCO.

iii. Shifting of investments from HFT to AFS category is generally not allowed. However, it will be permitted only under exceptional circumstances like not being able to sell the security within 90 days due to tight liquidity conditions, or extreme volatility, or market becoming unidirectional, with the approval of the Board of Directors/ALCO/Investment Committee.

iv. Transfer of scrip from one category to another, under all circumstances, should be done at the acquisition cost/book value/market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer should be fully provided for.

v. Transfer of scrip from AFS / HFT category to HTM category should be made at the lower of book value or market value. In other words, in cases where the market value is higher than



14

the book value at the time of transfer, the appreciation should be ignored and the security should be transferred at the book value. In cases where the market value is less than the book value, the provision against depreciation held against this security (including the additional provision, if any, required based on valuation done on the date of transfer) should be adjusted to reduce the book value to the market value and the security should be transferred at the market value.

vi. In the case of transfer of securities from HTM to AFS / HFT category: a. If the security was originally placed under the HTM category at a discount, it may be

transferred to AFS / HFT category at the acquisition price / book value. (It may be noted that as per existing instructions banks are not allowed to accrue the discount on the securities held under HTM category and, therefore, such securities would continue to be held at the acquisition cost till maturity). After transfer, these securities should be immediately re-valued and resultant depreciation, if any, may be provided.

b. If the security was originally placed in the HTM category at a premium, it may be transferred to the AFS / HFT category at the amortized cost. After transfer, these securities should be immediately re-valued and resultant depreciation, if any, may be provided.

vii. In the case of transfer of securities from AFS to HFT category or vice-versa, the securities need not be re-valued on the date of transfer and the provisions for the accumulated depreciation, if any, held may be transferred to the provisions for depreciation against the HFT securities and vice-versa.

3. Valuation of Investments

3.1 Valuation Standards i. Investments classified under Held to Maturity category need not be marked to market and will

be carried at acquisition cost unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity. The amortized amount will be shown in schedule 13-Interest earned: item II – Income on investments as a deduction. The book value of the security will continue to be reduced to the extent of the amount amortized during the relevant accounting period.

ii. The individual scrips in the Available for Sale category will be marked to market at quarterly intervals. The book value of the individual securities would not undergo any change after the revaluation.

iii. The individual scripts in the Held for trading category will be marked to market at monthly intervals. The book value of individual securities in this category would not undergo any change after marking to market.

Note: Securities under AFS & HFT shall be separately valued scrip-wise and depreciation/appreciation shall be aggregated for each balance sheet classification referred to in para 1 above. The investment in a particular classification may be aggregated for the purpose of arriving at net depreciation/appreciation of investments under that category. Net depreciation, if any, shall be provided for. Net appreciation, if any, should be ignored. Net depreciation required to be provided for, in any one classification should not be reduced on account of net appreciation in any other classification.

The provisions required to be created on account of depreciation in the AFS and HFT category in any year will be debited to the Profit and Loss Account and an equivalent amount (net of tax benefit, if any, and net of consequent reduction in the transfer to Statutory Reserve) or the balance available in the Investment Fluctuation Reserve (IFR) Account, whichever is less, shall be transferred from the IFR Account to the Profit and Loss Account. In the event provisions created on account of depreciation in the AFS and HFT category are found to be in excess of the required amount in any year, the excess should be credited to the Profit and Loss Account and an equivalent amount (net of


15

taxes, if any, and net of transfer to Statutory Reserves as applicable to such excess provision), should be appropriated to the IFR Account to be utilized to meet future depreciation requirement for Investments in this category. The amounts debited to the Profit and Loss Account for provision and the amount credited to the Profit and Loss Account for reversal of excess provision should be debited and credited respectively under the head ‘Expenditure - Provisions & Contingencies’. The amounts appropriated from the Profit and Loss Account and the amount transferred from the IFR Account to the Profit and Loss Account should be shown as “below the line” items after determining the profit for the year. The IFR Account should be shown as a separate item in Schedule 2 “Reserves and Surplus” under the Head “Revenue and other Reserves”.

3.2 Market Value (A) Quoted Securities The 'market value' for the purpose of periodical valuation of investments included in the Available for Sale and the Held for Trading categories would be the market price of the scrip as available from the trades/quotes on the stock exchanges, SGL account transactions, price list of RBI, prices declared periodically by Primary Dealers Association of India (PDAI) jointly with the Fixed Income Money Market and Derivatives Association of India (FIMMDA) / FBIL

(B) Unquoted SLR securities

In respect of unquoted securities, the procedure as detailed below should be adopted.

a) Central Government Securities:

The banks should value the unquoted Central Government securities on the basis of the prices/YTM rates put out by the FBIL at periodical intervals.

The Capital Indexed Bonds are to be valued on the basis of the prices/YTM rates put out by the FBIL at periodical intervals. Treasury Bills should be valued at carrying cost.

b) State Government Securities:

Securities issued by each state government, i.e., State Development Loans (SDLs), shall be valued in a manner which would objectively reflect their fair value based on observed prices/yields. The valuation is to be done as per the new methodology designed by FBIL for SDL securities. C) Other Approved Securities:

Other approved securities will be valued as per the YTM/prices put out by FBIL.

(B) Unquoted non-SLR securities a) Debentures/Bonds: All debentures/bonds will be valued on the YTM basis. Such debentures/bonds may be of different companies having different ratings. These will be valued with appropriate mark-up over the YTM rates for Central Government securities as periodically put out by PDAI/FIMMDA. The mark-up will be graded according to the ratings assigned to the debentures/bonds by the rating agencies subject to the following:

The rate used for the YTM for rated debentures/bonds will be at least 50 basis points above the rate applicable to a Government of India loan of equivalent maturity.

Where the debenture/bonds is quoted and there have been transactions within 15 days prior to the valuation date, the value adopted will not be higher than the rate at which the transaction is recorded on the stock exchange.


16

b) Special Securities:

Special securities directly issued by the Government of India to the beneficiary entities, which do not carry SLR status, may be valued at a spread of 25 basis points above the corresponding yield on GOI securities. At present, such special securities comprise Oil Bonds, Fertilizer Bonds, bonds issued to the State Bank of India (during recent rights issue), Unit Trust of India, Industrial Finance Corporation of India Ltd., Food Corporation of India, Industrial Development Bank of India Ltd., the erstwhile Industrial Development Bank of India and the erstwhile Shipping Development Finance Corporation.

c) Preference Shares:

The valuation of preference shares will be on YTM basis. The preference shares will be issued by companies with different ratings. These will be valued with appropriate mark-up over the YTM rates for Central Government securities put out by the PDAI/FIMMDA periodically. The mark-up will be graded according to the ratings assigned to the preference shares by the rating agencies subject to the following:

The YTM rate will not be lower than the coupon rate/YTM for a GOI loan of equivalent maturity.

Where preference dividends are in arrears, no credit will be taken for accrued dividends and the value determined on YTM should be discounted by at least 15% if arrears are for one year, and more if arrears are for more than one year. The depreciation/provision requirement arrived at in the above manner in respect of nonperforming shares where dividends are in arrears shall not be allowed to be set-off against appreciation on other performing preference shares. The preference shares will not be valued above its redemption value.

When a preference share has been traded on stock exchange within 15 days prior to the valuation date, the value will not be higher than the price at which the share was traded.

d) Equity Shares:

Equity shares in the Bank’s portfolio will be marked to market on a weekly basis. Equity shares for which current quotations are not available or where the shares are not quoted on the stock exchanges, will be valued at break-up value (without considering 'revaluation reserves', if any) which is to be ascertained from the company's latest balance sheet (which should not be more than one year prior to the date of valuation). In case the latest balance sheet is not available the shares are to be valued at Re. 1 per company.

e) Mutual Fund Units:

Investment in quoted Mutual Fund Units will be valued as per Stock Exchange quotations. Investment in un-quoted Mutual Fund Units is to be valued on the basis of the latest re-purchase price declared by the Mutual Fund in respect of each particular Scheme. In case of funds with a lock-in period, where repurchase price/market quote is not available, units could be valued at NAV. If NAV is not available, then these could be valued at cost, till the end of the lock-in period. Wherever the repurchase price is not available the units could be valued at the NAV of the respective scheme.

3.3 Non-Performing Investments (NPI)

3.3.1 In respect of securities included in any of the three categories where interest/ principal is in arrears, the bank should not reckon income on the securities and should also make appropriate provisions for the depreciation in the value of the investment. The bank should not set-off the depreciation requirement in respect of these non-performing securities against the appreciation in respect of other performing securities.


17

4. General

4.1 Income recognition

Bank may book income on accrual basis on securities of corporate bodies/public sector undertakings in respect of which the payment of interest and repayment of principal have been guaranteed by the Central Government or a State Government, provided interest is serviced regularly and as such is not in arrears. Bank may book income from dividend on shares of corporate bodies on accrual basis provided dividend on the shares has been declared by the corporate body in its Annual General Meeting and the owner’s right to receive payment is established. Bank may book income from Government Securities and bonds and debentures of corporate bodies on accrual basis, where interest rates on these instruments are predetermined and provided interest is serviced regularly and is not in arrears. Bank will book income from units of mutual funds on cash basis.

4.2 Broken Period Interest

Bank will not capitalize the Broken Period Interest paid to seller as part of cost, but treat it as an item of expenditure under P&L Account in respect of investments in Government and other approved securities. The above accounting treatment does not take into account the tax implications and, hence, the bank has to comply with the requirements of Income Tax Authorities in the manner prescribed by them.

4.3 Dematerialized Holding Banks will settle the transactions in securities as notified by SEBI only through depositories.

xxxxooxxoxxooxxxx


18

PART – III

INVESTMENT SYSTEMS, PROCEDURES AND INTERNAL CONTROL

1. Reporting and review procedures of Govt. Securities / Delivery procedure 2. Review / Reporting / Concurrent Audit – Internal Control System.

1. REPORTING AND REVIEW PROCEDURES OF GOVT.SECURITIES For every transaction of Govt. securities there shall be a deal slip which shall contain data relating to the nature of deal, name of the counter party, deal limit, name of the broker, brokerage if any, details of security, investment, amount, price, contract data and time etc. The details of deal slip are recorded in deal register. For all investment operations, office notes for individual transactions shall be placed to the Board on regular basis.

2. CSGL ACCOUNT / DELIVERY PROCEDURES

2.1 All payments / receipt in respect of transactions shall be with the counter party directly through Sponsor Bank and there shall be no netting of payment against receipt. In case of SGL facility, delivery of securities shall be by means of SGL transfer signed by the two authorized officials.

2.2 Bank shall maintain records of SGL transfer issued / received. The balance as per books shall be reconciled with SGL certificates received from RBI on a monthly basis. Any bouncing of SGL shall be immediately brought to the notice of RBI, Chief Officer, RPCD, Mumbai and the Board along with details of transactions.

3 REVIEWING, REPORTING & INTERNAL CONTROLSYSTEM

3.1 As per RBI circular No. RPC No. RFBC 17 A 4/92-93 dated 04.09.1992, Bank has been undertaking review of investments portfolio every half year i.e. on 30th September and 31stMarch. The review shall cover:

(a) Operational aspect of investment portfolio during the half year. (b) Certification regarding adherence to laid down investment policy and regulating guidelines

issued by RBI / NABARD, etc. 3.2 Put up such review note along with observations of the auditors on investment/disinvestment

transactions to the Board of Directors within one month from the close of the half year. 3.3 Forward a copy of the review report put up to the Bank’s Board every half year to RBI, RPCD

and NABARD within 15th November and 15th May. 3.4 Except Term Deposit Certificates with Sponsor Bank/ Other Banks, all other securities must

be held in “Dematerialized Form” lodged with Bank of India- Govt. Paper Department/ Depository Participant Office (DPO),Mumbai.

3.5 Physical securities shall be held in joint custody of Senior Manager,(HOD) Investment and Chief Manager, CSD . (HOD) ( If held in physical form)

3.6 All securities in whatever mode it is held shall subject to physical verification as at the end of each quarter (For March quarter by Statutory Auditors) by internal inspection. The report shall be placed before the Board.

3.7 Monthly Return in Form-VIII to RBI under Section 18 & 24 – Rule 13 A of Banking Regulation Act, 1949 with a copy to NABARD Regional office Bhopal

3.8 This policy will be reviewed every year.


19

4 Market Analysis for Investments:

All the investment decisions will be taken as per the exposure limit and the prudential norms of the Bank mentioned in our Investment Policy.

i. Surplus fund will be invested either in SLR securities, Non-SLR securities or with Banks as per Bank’s requirement, liquidity, yield and available avenues.

ii. Investment under SLR Securities will be made to comply with the regulatory and statutory requirements; however profitability will also be the objective of managing such investments. Therefore Bank will look for profitable investment avenues by opting for good and high yielding securities from the primary and secondary market. Bank will use web based NDS-Om facility and sponsor bank – Treasury Office for getting market rates and availability of securities.

iii. Prudent deployment of funds in approved and permissible Non-SLR investment avenues after ensuring sufficient liquidity, adequate safety and optimum profitability. Investment will be made after making analysis based on their rating and prevailing yield in same type of papers at the time of investment.

iv. With regard to placement of surplus funds in Term Deposits with other Banks, Bank will take the rates of 3-4 banks and will place the fund with the Bank which will give maximum interest rates. However this will not apply for placing funds with sponsor bank and in this regard decision may be taken by investment committee/chairman.

5. General Guidelines:

Our Bank can sell a government security already contracted for purchase, provided:

1. The purchase contract is confirmed prior to the sale,

2. The purchase contract is guaranteed by Clearing Corporation of India Ltd. (CCIL) or settled

by an established central counterparty in or the security is contracted for purchase from the

Reserve Bank and,

a. The sale transaction will settle either in the same settlement cycle as the preceding purchase contract, or in a subsequent settlement cycle so that the delivery obligation under the sale contract is met by the securities acquired under the purchase contract (e.g., when a security is purchased on T+0 basis, it can be sold on either T+0 or T+1 basis on the day of the purchase; if however it is purchased on T+1 basis, it can be sold on T+1 basis on the day of purchase or on T+0 or T+1 basis on the next day).

3. Bank must not invest in unrated non SLR securities. A security will be rated if it is subjected to detailed rating exercise by an external rating agency registered with SEBI or one of the leading rating agencies like Fitch, Moody’s and S&P’s and is carrying a current valid rating.

4. The rating relied upon will be valid if: a. The credit rating letter relied upon is not more than one month old on the date of

opening of the issue, and b. The rating rationale from the rating agency is not more than one year old on the date

of opening of the issue, and c. The rating letter and the rating rationale is a part of the offer document. d. In the case of secondary market acquisition, the credit rating of the issue should be in

force and confirmed from the monthly bulletin published by the respective rating agency.


20

5. In view of high credit risk involved in long term Zero Coupon Bonds (ZCBs) Bank should not invest in such ZCBs

6. Bank will not undertake short selling of securities other than prescribed by RBI/regulators. 7. Within the overall framework of the investment policy, Bank shall not commit for underwriting

and market–making in Government Securities, Corporate/PSU/FI bonds, Commercial Papers, Certificate of Deposits, debt mutual funds and other fixed income securities.

8. Bank shall not invest in very Low Coupon Bonds. 9. As per the RBI guidelines the Bank should settle the transactions in securities as notified by

SEBI only through depositories. After the commencement of mandatory trading in dematerialized form, bank would not be able to sell the shares of listed companies if they were held in physical form. In order to extend the dematerialized form of holding to other instruments like bonds, debentures and equities, the Bank is permitted to make fresh investments and hold bonds and debentures only in dematerialized form. Outstanding investment in scrip forms are also required to be converted in dematerialized form.

Xxxxooxxoxxoox

Documents

MADHYAPRADESH GRAMIN BANK HEAD OFFICE: INDORE