The Bank’s Investment portfolio can be broadly categorized into approved securities (SLR) and other (Non-SLR) securities. SLR securities are those approved securities which are required for `Statutory Liquidity Reserve’ purpose. They consist of: 1. Central and State Government Securities (G. Secs and SDLs) 2. Treasury Bills 3. Securities issued by Public Sector Undertakings and other statutory bodies under Central Government Guarantee (Notified as approved secrities) 4. Securities issued by State level Public Sector Undertakings and other Statutory Bodies under State Government Guarantee (Notified as approved securities.)
The SLR securities mainly consist of the Government Securities and the Treasury Bills. Government Bonds The central or state government on India issues these bonds. As the bonds issued are backed by the government of India they are highly secure and considered as risk free. Hence the coupon rates attached to them are low compared to other securities. Instrument features are: 1. Maturity 2. Coupon 3. Principal
In the bond markets, the terms maturity and term-to-maturity, are used frequently. Maturity of a bond refers to the date on which the bond matures, or the date on which the borrower i.e. the state or central government has agreed to repay (redeem) the principal amount to the lender. The borrowing is extinguished with redemption, and the bond ceases to exist after that date. Term to maturity, on the other hand, refers to the number of years remaining for the bond to mature. Term to maturity of a bond changes every day, from the date of issue of the bond until its maturity.
Coupon Rate refers to the periodic interest payments that are made by the borrower (the issuer of the bond) to the lender (the subscriber of the bond) and the coupons are stated upfront either directly specifying the number (e.g.8%) Coupon rate is the rate at which interest is paid, and is usually represented as a percentage of the par value of a bond. Principal is the amount that has been borrowed, and is also called the par value or face value of the bond. The coupon is the product of the principal and the coupon rate. Typical face values in the bond market are Rs. 100. The bonds can be purchased at premium (at price higher than the par value) or at discount (at price lower the par value)
In case of G.Sec the coupon is paid semi-annually. For eg. 6% GS2019Feb This means the coupon rate is 6% and the security will redeem in February 2019. And as the coupons are paid semi-annually the 1st payment of the coupon i.e. 3% will be in February and the next 3% will be paid in August. Treasury Bills are Zero Coupon Bonds issued by RBI, maturing in less than a year. Treasury Bills are issued in the form of Promissory notes or Finance Bills by the government. Treasury Bills are risk free and issued by RBI on behalf of Government.
Treasury Bills are money market instruments to finance the short-term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price. There are different types of Treasury bills based on the maturity period at present; the Treasury Bills are the 91-days, 182-days and 364-days Treasury bills. They can also form the part of the compliance of the SLR requirement by the banks. As their maturity period is less they are used for short term investment. TB’s are issued on Wednesdays by RBI and the trading of TB takes place on the NDS platform.
The bidding for TB’s is done mainly depending upon the secondary market. TB’s are not very liquid as the secondary market for TB’s is not very active but as their maturity period is small they are considered as a liquid instrument. Non-SLR Securities Non SLR Securities are the securities which are not required for Statutory Liquidity Purpose. Non SLR investments shall include following instruments: 1. Non SLR Central and State Government Securities. 2. Debentures and Bonds of PSUs.
3. Corporate Debentures and Bonds issued through public issue / Private Placement route. 4. Floating rate Bonds issued by PSUs, Corporates, Banks and FIs. 5. Equity & Preference Shares 6. Units of UTI and other Mutual Funds 7. Indira Vikas Patra 8. Pass-through certificates (PTC)/ Collateralized Bond Obligations(CBO)Asset Backed Securities/ Mortgage Backed Securities. 9. Venture Capital Funds. 10. Any other new instrument not specifically mentioned above and which is not in the nature of a credit proposal. The Banks are required to value their investment portfolio at market prices and if required, provide for depreciation on an ongoing basis and ignore the appreciation if any in case of SLR, Non SLR securities