The Reserve Bank of India has issued the Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026, marking a significant shift in how banks account for and manage their investment portfolios. These amendments align the investment framework with the newly introduced IRACP Directions, 2026, bringing greater consistency between credit risk, provisioning, and investment valuation practices.
A key highlight of the amendment is the introduction of globally aligned financial concepts such as Effective Interest Rate (EIR), Expected Credit Loss (ECL), amortised cost, and staging (Stage 1, 2, and 3). These definitions integrate investment accounting with credit risk assessment, ensuring that banks adopt a more forward-looking and risk-sensitive approach.
The Directions also refine the valuation framework across investment categories. Securities classified under Held to Maturity (HTM) will now be measured at amortised cost using the EIR method, with no mark-to-market (MTM) requirement post initial recognition. Meanwhile, Available for Sale (AFS) securities must be fair valued at least quarterly, with gains and losses routed through a dedicated AFS Reserve instead of the Profit and Loss account. This change enhances transparency while reducing volatility in earnings.
Another important change relates to initial recognition and transaction costs. Investments are generally required to be recorded at fair value, with a presumption that acquisition cost equals fair value unless specific conditions, such as related-party transactions or distressed sales, indicate otherwise. Transaction costs are to be appropriately incorporated depending on classification.
The amendment also overhauls reclassification rules between HTM, AFS, and Fair Value Through Profit and Loss (FVTPL) categories. It clearly prescribes how gains or losses should be treated either through reserves or the Profit and Loss account and how EIR and ECL should be recalibrated upon reclassification.
A major transition provision applies from April 1, 2027, where the fair value of existing HTM and AFS debt securities will become the new gross carrying amount. Any resulting adjustment will be routed through reserves, ensuring a smooth shift without impacting current profitability.
Further, income recognition, asset classification, and provisioning norms for investments are now directly linked to the IRACP Directions, 2026. The concept of Non-Performing Investments (NPI) is aligned with NPA norms, and Stage 3 assets will require income recognition only on a realisation basis.
Overall, these amendments represent a comprehensive move towards a principle-based, globally harmonised investment accounting regime, strengthening risk management and financial reporting standards in the Indian banking system.
